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Tax Planning For 2018 – Possible Tax Strategies

Tax planning for next year poses several questions now.  How to prepare, how to interpret, how to react!  The implementation of the Tax Cuts and Jobs Act brings with it many impactful changes.  For individual taxpayers, regardless of how you file…Individual, Head of Household, Married Filing Jointly or Married Filing Separately…you will find things like a much higher standard deduction, elimination of personal exemptions, and elimination of several items which previously qualified for itemized deduction.  There are also new limits on deductions for state and local taxes ($10,000 aggregate limit).

New tax challenges require new tax strategies.  Following are just a few you might consider.

Individuals who have stock can consider selling shares which show a loss to offset gain (up to $3,000).  Talk to your tax or investment specialist about investing in a tax-efficient manner – both retirement and non-retirement accounts.

Consider giving next year’s charitable contribution in December.  This will double your charitable giving deduction this year to help you exceed the standard deduction for 2018.  Also, contributions of appreciated property (i.e. stock) provide an additional benefit because you avoid paying capital gains on any profit.  Taxpayers age 70 ½ or older can reduce income tax owed on required minimum distributions from IRA accounts by donating them to a charitable organization instead.

Speaking of retirement accounts, maximums for both 401(k) contributions and IRA contributions have increased. If you have a 401(k) or similar retirement plan at work, you can elect to defer as much as $18,500 into your account during 2018, and if you’re 50 or older, this limit increases to $24,500.

If you have a traditional IRA, you can contribute as much as $5,500 for the 2018 tax year.  That goes up to $6,500 if you are 50 or older.  You can make your IRA contributions at any point before the April tax deadline.  Even if you have a retirement plan at work, you may still be eligible.

Finally, if you have self-employment income, you may have additional options – SIMPLE IRA, SEP-IRA, or Solo 401(k) contributions.  Depending on the amount of your self-employment income, your limits may be quite generous.  Self-employment doesn’t need to be your only form of income to take advantage of these options.

Health savings accounts have even bigger benefits if you qualify.  HSA’s are tied to high-deductible health insurance plans, and for 2018, those with individual health coverage can contribute up to $3,450.  Family coverage participants can contribute up to $6,850.  Contributions are deductible from your taxes, and if you use funds for qualifying healthcare expenses, you won’t have to pay tax on investment income or gains.

It is more important than ever to track expenses.  This is imperative now, and going forward.  Keep in mind, the standard deduction has almost doubled.  Fewer people will be itemizing, and deductions like the ones below, will help only those who do.

Things like medical expenses can add up!  For 2018, you are still able to deduct the expenses that exceed 7.5% of your adjusted gross income (AGI).  Next year the percentage increases to 10%.  If you have a home equity loan or line of credit, you must show that the home equity funds were used to significantly improve your home for the interest on that loan to be deductible.

Know how close you are to a new tax bracket.  Talk to your accountant about your withholdings to determine if you have withheld enough.  There is still time to adjust your withholdings or, if you have income this year that was not covered by withholding taxes, your estimated tax payment.

If you are one of the few who will itemize this year, consider making estimated state tax payments before December 31st.  Even if you are not required to do this, it can maximize your SALT deduction (State and Local Tax Deduction).  If you own a home, consider making your January mortgage payment before the end of the year.  You will be able to deduct the interest for 13 months of payments, instead of 12.

Talk to your accountant now for full details of your tax situation.

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