As the end of 2018 approaches, I can honestly say it has been the craziest year to be an advisor in a long time! Saying “That’s a wrap” and closing the books on 2018 will be welcome to many advisors. The 2018 tax year will be first time filing under the new tax reform rules, and it is certainly best to get your check up with your individual preparer as soon as you can, even now if time permits. It is always better to know the facts in real time and not to look back at things you could have done. Here are some tips to end the check off the tips below which apply to you.
#1 – Sell losing stocks to take advantage of tax loss harvesting. The S&P started the year at 2789 and as of the writing of this blog was 2701. There could be investments that have lost value and you will want to sell these investments to activate or recognize the loss which will offset any gains and could lessen your income tax. $3000 of loss can be reported in excess of gain against income. Any additional loss can be carried over into future years. Just make sure to hold off buying the same investment you sold for at least 30 days to avoid a wash sale per IRS rules, making the loss null and void.
#2 – Determine whether you will be itemizing or taking the standard deduction. With the upcoming standard deduction being $12,000 for filing single, $18,000 for head of household, $24,000 for married filing jointly, many people will not be itemizing their deductions on the 2018 filings. However, if you find that you will benefit, consider lumping medical expenses and charitable giving. In 2018, the threshold of the medical expense deduction is at 7.5 of Adjusted Gross Income. This threshold will be increasing up to 10% in 2019. Additionally, taxpayers who itemize can deduct charitable contributions of as much as 60% of their adjusted gross income, up from 50% last year. It is not too late to lump the deductions for 2018 but time is running out fast so consult your advisors on this one for sure.
#3 – Maximize your retirement plan. Taxpayers, under the age of 50, can contribute $18,500 a year. Taxpayers over the age of 50 can contribute 24,500. If you are not at those numbers, consider making contributions to “catch-up” before year end. You can contact your human resources department or payroll department to determine the best way to do this. People often have their entire last couple of checks go entirely into their 401k to take advantage of the deduction through the company plan.
#4 – Consider gifting money. Taxpayers can gift anyone up to $15,000 tax free. This is in addition to any money already given throughout the year for medical support or educational purposes. This provides a route to give small shares of your portfolio away to avoid any future gift tax consequences. Often wealthy parents or grandparents give an outright gift cash or often times gifts of equity to a child or grandchild when purchasing a home. For example, Dad and Mom Ben and Ray can give their son Howard and Wife Beth $30k each in December and again in January for a total of $120,000. Consult with someone who understands the gift tax rules.
#5 – Make an appointment with your advisor. I know I have said this too many times but it really holds true. To best understand your withholding, estimated payments, or tax reform and to determine the options that work best for YOU, sit down with your trusted advisor. Decisions are best made with full understanding of your particular scenario. Also use this time to look at the year ahead and beyond.
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About Stu: With more than 29 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.
