10 smart year-end tax moves

December 14, 2018 4:06 PM

Clients have precious days to begin planning the upcoming tax season following changes under the new tax law.

Here are some end-of-year planning tips to help minimize their liability from Intuit senior tax analyst Mike D’Avolio.

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Maxing out their retirement

• Self-employed clients can contribute up to $55,000 into a SEP IRA for 2018.
• They have until the tax filing deadline to contribute up to $5,500 to their IRA ($6,500 for those 50 and over) and get a tax deduction for their contribution.
• Clients may even get a Saver’s Credit of up to $1,000 ($2,000 for those who are married filing jointly) for contributing to their retirement.

Vanguard, Blackrock and State Street have 83% of U.S. ETF assets, 50% of total ETF revenue and own the 50 largest ETFs.

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Donating appreciated stock

• If clients have owned an asset for more than one year, they can deduct the property’s market value on the date of the gift and they avoid paying capital gains tax on the built-up appreciation.
• Clients must have a receipt to back up any contribution, regardless of the amount for a stock transaction.

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Paying for college courses in advance

• If clients have been putting off that class to boost their career, they can pay for college courses for the first quarter of next year by Dec. 31 and possibly be able to get the Lifetime Learning Credit of up to $2,000 per return.
• If clients have a college student in their family, they may also be able to pay the student’s first-quarter 2019 college courses by Dec. 31 and may be able to get the American Opportunity Tax Credit up to $2,500 for the first four years of college.
• Also, don’t forget about the student loan interest deduction of up to $2,500 if they are paying on student loans.

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Selling loser investments to offset gains

If clients' losses are more than their gains, they can use up to $3,000 of excess loss to wipe out other income. If they have more than $3,000 in excess loss, it can be carried over to the next year.

Deferring income

It’s tough for employees to postpone wage and salary income, but they may be able to defer a year-end bonus into next year — as long as it is standard practice in their company to pay year-end bonuses the following year.
If they are self-employed or do freelance or consulting work, they have more leeway. Delaying billings until late December, for example, can ensure that they won’t receive payment until the next year.
Of course, it only makes sense to defer income if the taxpayer thinks they will be in the same or a lower tax bracket next year. They don’t want to be hit with a bigger tax bill next year if additional income could push them into a higher tax bracket. If that’s likely, they may want to accelerate income into 2018, so they can pay tax on it in a lower bracket sooner, rather than in a higher bracket later.

Implementation of videoconferencing is intended to serve taxpayers virtually via computers or mobile devices, explains Donna Hansberry, chief of IRS appeals.

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Watching flexible spending accounts

With year-end approaching, clients should check to see if their employer has adopted a grace period permitted by the IRS, allowing employees to spend 2018 set-aside money as late as March 15, 2019. If not, they can do what employees have always done and make a last-minute trip to the drug store, dentist or optometrist to use up the funds in their account.

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Tax reform and itemizing

With the almost doubling of the standard deduction under the Tax Cuts and Jobs Act, taxpayers who once itemized and were also able to take additional itemized deductions such as charitable contributions may now have to take the standard deduction, but if their tax deductions are right at the max ($12,000 for single taxpayers and $24,000 for those who are married filing jointly), they can make smart moves before the end of the year:
• Donate more to charity to push themselves over the new standard deduction amount and maximize their deductions.
• Use donor-advised funds for charitable donations.
• Bunch their itemized deductions. Watch deductible expenses like medical expenses that are deductible at over 7.5% of their adjusted gross income for 2018. If their medical expenses are getting close to the threshold but not quite there, they can make those doctor visits they’ve been putting off.

Clients who want to leave their home to a loved one may consider setting up a life estate.

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Eliminated deductions No. 1: Moving expenses

Expenses a client paid for moving for their job were tax-deductible, but under the law it is no longer tax-deductible unless they are active-duty military. They should negotiate a moving reimbursement with their employer, and also remember that they can deduct mortgage interest and property taxes (property taxes, state income, and state and local sales tax capped at $10,000 in aggregate).

The new Tax Cuts and Jobs Act has scrapped taxes on the child's excess unearned income at the same rate as the parents.

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Eliminated deductions No. 2: Dependent exemption

The dependent exemption of $4,050 is eliminated, but clients shouldn’t forget that they can send their kids to camp over the holidays if they have to work and get a Child and Dependent Care Credit up to $1,050 for one child and up to $2,100 for two or more kids. Also, remember that the Child Tax Credit doubled and is now $2,000 per dependent under 17.

Eliminated deductions No. 3: Unreimbursed employee expenses like classes

Miscellaneous itemized deductions like unreimbursed employee expenses for classes were eliminated, but taxpayers can still take advantage of education tax credits like the American Opportunity Tax Credit up to $2,500 or the Lifetime Learning Credit up to $2,000.