Year-End Tax Checklist

Year-End Tax Checklist

Maximize Your Retirement Account Contributions

Now is the time to maximize contributions to your retirement accounts. If you participate in a company sponsored 401(k) plan, try to meet your employers’ matching contribution at the very least so you’re not leaving “free” money on the table. Additionally, you may want to increase your own contribution in an effort to get closer to the maximum amount allowed; $18,500 for 2018 or $24,500 if you’re age 50 or over. If you contribute to an IRA, you have until April 15, 2019 to make a 2018 IRA contribution. The maximum you can contribute to an IRA for tax-year 2018 is $5,500 plus an extra $1000 catch-up contribution, if you are age 50 or older.Start thinking about retirement planning now.

Check Your Flexible Spending Account Balances

 There is still time to take a look at your flexible spending accounts (FSAs). The “use it or lose it rule” generally applies to your flex accounts. You may also want to check with your employer to see if they have adopted a grace period allowed by the IRS to set aside 2018 money into the beginning of 2019.

Maximize HSA Contributions

 A health savings account (HSA) is a tax-advantaged medical savings account available to taxpayers enrolled in a high-deductible health plan (HDHP). HSA funds may only be used to pay for qualified medical expenses. The 2018 annual contribution limit for individuals is $3,450 and $6,900 for those covered under qualifying family medical plans. Funds in an HSA grow tax-free and unlike an FSA, can grow from year to year.

Check Your Required Minimum Distributions

 If you’re age 70 ½ or over and required to take distributions from your traditional IRA or other qualified retirement accounts, do a quick verification to ensure you’ve satisfied your distribution for 2018 to avoid paying up to a 50 percent excise tax if you fail to take the appropriate distribution.

Tally Up Medical Deductions

Under the new tax law, the adjusted gross income floor for the medical expense deduction was reduced from 10 percent to 7.5 percent of adjusted gross income (AGI) for tax years 2017 and 2018 only. It reverts back to 10 percent of AGI next year. Keep in mind, you have to itemize to use this deduction. If you have significant out-of-pocket medical expenses this year or can prepay certain expenses for 2019 in 2018 to bring your total itemized deductions over the standard deduction, you may be able to itemize and take a larger deduction for tax year 2018.

Consider Paying Charitable Contributions Forward

While the new tax law increased the limit for charitable donations to 60 percent of AGI (up from 50% in 2017), you must itemize in 2018 to deduct qualified charitable contributions. However, there are strategies that enable taxpayers to accelerate planned charitable contributions into a given tax year that may benefit taxpayers seeking to itemize in a given tax year. 

Verify Your W-4 Withholding

 Changes in the federal tax law made it necessary for taxpayers to re-evaluate their paycheck withholding for 2018. The IRS introduced new tax withholding tables earlier in the year. If you have not yet evaluated your withholding for tax-year 2018, consider a quick “paycheck checkup” using the online IRS withholding calculator. Be sure any changes in your life—marriage, divorce, the birth of a child—are reflected in your allowances. The goal here from a strategic tax planning perspective is to reduce the potential for any surprises in the form of a high tax bill or too high of a refund when filing your taxes next April. Remember, getting a big tax refund isn’t all it’s cracked up to be. It simply means that you were providing Uncle Sam with a short-term, no-interest loan.

Rebalancing Your Portfolio & Harvest Losses

If the record-setting gains in the stock market this year have thrown the equity portion of your investment portfolio out of alignment, now is a good time review your overall asset allocation to decide which asset classes might need trimming and which should be beefed up. If getting back to your target allocation involves selling stocks that have significant gains, you may be able to offset those gains and reduce your 2018 income tax bill through tax loss harvesting—selling investments that have lost value over time and using those capital losses to offset any capital gains (or, in the absence of gains, up to $3,000 a year in income).

Making Annual Gifts

This year you can gift up to $15,000 per person, to any recipient without incurring gift taxes. For example, if both you and your spouse take advantage of this annual gift tax exclusion, you can give a total of $30,000 to each of your children and grandchildren, without paying gift taxes, while also reducing the size of your taxable estate. As long as the gift doesn’t exceed the $15,000 limit, it will not count against your lifetime estate tax exclusion.

Prepaying Expenses to Increase Your Tax Deductions

Prepaying property taxes, mortgage payments, medical bills, or estimated state or local income taxes may give you additional itemized deductions that can reduce your taxable income. In addition, the Tax Cuts and Jobs Act provides reduced tax rates for small businesses (earning less than $315,000 for joint filers) organized as pass through entities (partnerships, S corporations, LLCs, and sole proprietorships). Prepaying or accelerating business deductions may help you reduce your taxable income and qualify for lower tax rates.

Distributing Trust Assets to Beneficiaries

Trusts reach the top tax brackets more quickly than individuals do. If you’re the trustee for a trust that gives you some discretion over when income is distributed to beneficiaries, consider making those distributions before year end, rather than having the trust taxed at the higher trust-level tax rate.

529 Plans

Review asset allocation and explore possibility of front loading gifting (up to 5 years), which would allow for a $75,000 contribution per donee ($150,000 contribution per donee for a married couple). Starting this year, 529 funds can be used for qualified K-12 education expenses up to $10,000 per year.