Five Ways — Plus One — to Minimize Your Tax Burden Before Year-End
2018 was a year of great change... And I’m just not referring to the economy, or the stock and bond markets. This was first year of the TCJA (Tax Cut and Jobs Act). And while we pretty much know what the terms are, no one will really understand the impact it will have on their taxes until they're filed next year. Here are five steps you can take before the year ends to try to control your tax burden in advance — plus one tip for keeping your sanity while the dust settles.
- Cap Gains and Mutual Funds
Do you have mutual funds in a taxable account? You could be subject to capital gains taxes from any distributions the fund may make this year. Even if you didn’t sell any shares, other share holders did, which forces the portfolio managers to raise cash by selling issues that could generate capital gains. Check on this before year-end because it could be offset by losses on other positions in your portfolios. Check now or forever hold your peace…!
- Charitable Contributions
It is said that giving is better than receiving. In the case of charitable contributions, giving can also be receiving. By making an end-of-year donation to an IRS-approved charity, taxpayers are eligible to deduct the donation from their taxes. Some rules do apply:
- The Internal Revenue Service requires you to maintain a bank record or receipt of the gift
- For any contribution of $250 or more, you must obtain and keep records or written acknowledgement from the charity
- Retirement Contributions
Opening a traditional retirement account can be an easy way to reduce your tax liability. Make sure you know when the yearly contributions end for your plan. Employer-associated plans like 401(k)s and SIMPLE IRAs have contribution years ending with the calendar year. Traditional and Roth IRAs and SEP plans allow you to contribute up to April 15, 2019. Contribution limits for each type of retirement account will be different based on your specific circumstances — such as your age — so talk to your financial advisor to see how much you are able to contribute to your plan. Traditional account types include
- Individual Retirement Account (IRA)
- Savings incentive match plan for employees (SIMPLE) IRA
- Simplified employee pension plan (SEP)
- Give a Gift
You can gift your child up to $14,000 per year without having to pay tax on the gift. And, most of the time, the child receiving the gift does not have to pay taxes on the gift either. If you’re married, you may gift your child $28,000 per year as a married couple. If you have multiple children, you may gift up to $14,000 per year (or $28,000 per couple) to each child without being subject to the Federal Gift Tax.
- Review Tax Credits
Currently, the IRS offers numerous tax credits for businesses and individuals to reimburse them for qualified spending throughout the year. Every possible tax deduction can help reduce your tax burden — yet many available legal deductions go unclaimed each year because most taxpayers simply don’t know the breaks exist. From eyeglasses to airline baggage fees, you might qualify for at least one often-forgotten deduction, and maybe more than one. The Internal Revenue Service allows you to take the cost of certain items, known as itemized deductions, off your tax bill if you qualify. You should itemize deductions if they add up to more than your standard deduction, the IRS advises. Itemizing also makes sense if you are not able to use the standard deduction. Do you have student loan interest? Or alimony payments? Maybe you needed to buy crutches or hearing aids this past year or paid hospital fees for physical therapy? Or had casualty or theft losses? Or large unreimbursed employee business expenses? To get the most out of your tax deductions, stay organized and do your research. No one likes getting audited — although if the IRS does red-flag your return, some costs of professional advice to defend yourself are, in fact, also deductible.
- BONUS TIP: Don’t Worry About Tax Changes for 2019
Between now and the end of the year, plenty of ink will continue to be spilled about what Congress will do to deal with our tax rates for 2019 and beyond. The truth is no one knows whether rates will actually change or by how much. But with the calendar year coming to a close, it’s time to focus on reducing your tax outlays.
Don’t hesitate to reach out to the UWM team. We're available to discuss your options because tax strategies play an important role in your overall financial planning.