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2018 Year-End Tips

December 2018

Happy Holidays Everyone! 

I hope this email finds you and your family well, and hopefully you are enjoying the holiday season.  It is a great time to spend with loved ones, but also to work hard in meeting some year-end goals.  For me, it is a time when I want to reach out to all my wonderful and loyal clients to give you some tax planning ideas that you could implement before we close the book on 2018.  l will be sending you another email at the start of the new year with more company news and important tips on preparing to get your taxes together for our annual visit.

We are now almost one year removed from one of the most sweeping changes to the US Tax Code in Decades (The Tax Cuts and Jobs Act).  I know most of you are aware of this, primarily because of the change you have seen to your net pay check; however, I think we are all collectively holding our breath to see how this plays out come tax time.  In the meantime, below is a list of strategies that can have an immediate impact in just a few short weeks.

Maxing out your Retirement Plan

It’s not too late to increase contributions to a retirement account.  Traditional retirement accounts like a 401(K) or individual retirement accounts still offer some of the best tax savings.  Contributions reduce taxable income at the time they are made, and you do not pay taxes until the money is taken out of retirement.  In addition, they help reduce income under thresholds for claiming additional tax benefits, such as education credits, child tax credit, retirement saver’s credit, and earned income tax credit.  The 2017 contribution limits are $18,500 (or $24,500 for those 50 or older) for a 401(k) and $5,500 ($6,500 for those 50 years or older) for an IRA.  If you are self-employed, you can contribute up to $55,000 to a SEP IRA.  Please also note that Traditional and ROTH IRA contributions can be made up until the April 15th, 2019 tax deadline, and SEP IRA Contributions can be made up until the tax deadline including extensions (up to October 15th, 2019).

Non-Retirement Assets

If you own shares of stocks, mutual funds, or other securities that lost their value since the original investment, selling them would recognize a loss.  This loss can offset other capital gains and would also allow you to get an additional $3,000 to offset ordinary income.  If you are concerned about selling when the value is low, the best suggestion is to either wait 30 days to rebuy (to avoid the wash-sale rule) or buying a similar security.

Itemized Deductions

With the almost doubling of the standard deduction, taxpayers who once itemized and may now have to take the standard deduction; however, if your tax deductions are right at the max ($12,000 for single taxpayers and $24,000 for those who are married filing jointly), you can make smart moves before the end of the year. The best strategy is the use of bunching your itemized deductions.  The following is list of things:

  • Doubling up Charitable Donations (Donating every other year)
  • If your medical expenses are reaching over 7.5 percent of your income, it might be a good time to pay off old medical bills, get in some doctor visits you’ve been putting off.
  • Making an extra one or more mortgage payments.

Watching flexible spending accounts

Flexible spending accounts are fringe benefits that many companies offer that let employees steer part of their pay into a special account that can then be tapped to pay childcare or medical bills.

The advantage is that money that goes into the account avoids both income and Social Security taxes. The catch is the notorious “use it or lose it” rule. You’ll have to decide at the beginning of the year how much to contribute to the plan and, if you don’t use it all by the end of the year, you may forfeit the excess.

With year-end approaching, you should check to see if your employer has adopted a grace period permitted by the IRS, allowing employees to spend 2018 set-aside money as late as March 15, 2019. If not, you can do what employees have always done and make a last-minute trip to the drug store, dentist or optometrist to use up the funds in your account.

Another very under-rated and under-utilized benefit is the child care account, where many of you can put up to $5,000 away to use for qualified expenses, such as pre-school, before and after-school programs, baby-sitting and nanny services, and summer day-camp, so that you and your spouse and go to work.

Paying for college courses in advance

If you have been putting off that class to boost your career, you can pay for college courses for the first quarter of next year by Dec. 31 and possibly be able to get the Lifetime Learning Credit of up to $2,000 per return.

If you have a college student in the family, you may also be able to pay the student’s first-quarter 2019 college courses by Dec. 31 and may be able to get the American Opportunity Tax Credit up to $2,500 for the first four years of college.

Also, don’t forget about the student loan interest deduction of up to $2,500 if you are paying on student loans.

Pay Your Taxes

If you know you are going to owe state and local taxes (where applicable), and either you haven’t made any estimated payments, or your 4th quarter one isn’t due until January, you may want to pay it ahead of time.  By paying your taxes in 2018, you will immediately be able to see tax savings since you are able to deduct these on your federal return.  This is especially true if you are a business as it can be a direct write off against your income.  Payments now can easily be made electronically simply by going to the department’s website and searching for “electronic payment options” or typing in the name of the department and “electronic payments” attached to it.  For example, if you wanted to pay Pennsylvania State Taxes, you would search for “Pennsylvania State Tax Electronic Payments”

I certainly hope this information has given you some ideas to put money back in your pocket given how much has come out of your pocket this whole month! For more information, please give us a call or send us an email.

From all of us at Weisz Accounting Services, we wish you all a very happy and healthy holiday season.