Three Year-End Tax Planning Tips for 2018

Each year one of the common questions I get around Thanksgiving is what types of tax planning clients should be aware of as the year ends. This year is unique in that it is the first full year of the massive tax changes, so planning has been a combination of learning as much as I can about the new tax laws and learning how to best apply that to each client. After doing planning for clients so far, here are three areas I would recommend focusing on as the year ends:

1.       Qualify for the Pass-Through Deduction: If you are a business owner and qualify for the Section 199A (pass-through deduction), focus on keeping your taxable income under the thresholds to receive the deduction. If you are a single tax payer, the phase out begins at $157,500, whereas if you file married filing joint, the phase out begins at $315,000.

2.       Plan Retirement Contributions: If you are planning on making year-end retirement contributions, plan what amount and when you will make the contributions. During tax planning, you may realize that contributing to a SEP IRA, a traditional IRA, or another type of retirement plan will help build your retirement funds as well as save on your taxes.  While the IRA contribution doesn’t need to be made until April 15, knowing whether you are going to put money into the IRA or not is crucial for tax planning.

3.       Calculate whether you will itemize your deductions: Many tax payers who itemized in previous years either won’t itemize going forward, will have some of their itemized deductions capped due to changes in the tax law, or will need to more strategically plan their itemized deductions. With the standard deduction now being $24,000 for married filing joint and $12,000 for single filers, I am encouraging clients who may be right around those marks to strategically plan their payments. Clients who used to prepay their property taxes for the extra deduction, but are now capped at a max of $10,000 state and local taxes, are being encouraged to not make the extra payment until it’s due. If you are right around the itemization threshold and donate regularly to a church or a nonprofit, you can consider paying your monthly contributions for January/February/March at the end of December to have higher itemized deductions in 2018. You will have lower itemized deductions in 2019 due to doing this, but it won’t matter because you won’t itemize.

If you have any questions regarding any of these topics, or would like to do some tax planning, I can always be reached at thole@mlhcpas.com.