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New tax-filing status tips for clients: Tax Strategy Scan

Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

Tips on deciding which tax-filing status is best for you
Married couples may file joint or separate returns next year, depending on which of these two options will they choose to take advantage of the tax changes under the Tax Cuts and Jobs Act, according to this article on The Wall Street Journal. Data show that most couples file joint returns, as filing separately could mean bigger a tax bill. However, filing a separate return is recommended if they distrust their spouse's finances.

A portion of a client’s Social Security benefits may be subject to federal income tax depending on their income levels.
U.S. Department of the Treasury Internal Revenue Service (IRS) 1040 Individual Income Tax forms for the 2016 tax year are arranged for a photograph in Tiskilwa, Illinois, U.S., on Tuesday, March 28, 2017. Due to the Emancipation day holiday, this year's income taxes will need to be filed by April 18 instead of April 15. Photographer: Daniel Acker/Bloomberg

2 moves to cut your clients’ tax bills
Ramping up pretax contributions to a 401(k) plan can help clients cut their taxable income and subsequently their tax bill, according to this article from The New York Times. Another retirement saving strategy that can protect income from tax bite is to direct earnings into a traditional IRA. Pretax contributions to IRAs can be deductible, depending on the clients' filing status, adjusted gross income and whether or not they or their spouse has a retirement plan. Taxpayers have until April 15 to make the IRA contributions and have the money credited for the 2018 tax year, an expert says.

Steps to take before year’s end to avoid an unpleasant tax surprise
Taxpayers who want to avoid unnecessary tax burden next year are advised to determine their tax liabilities before the year ends, according to this article on MarketWatch. They should also organize their financial documents and check whether they would be better off itemizing deductions or opting for the standard deduction on their 2018 returns. Retirees who are 70 1/2 and older should not forget to take the mandatory taxable distributions from their tax-deferred accounts, while those who consider converting retirement assets into a Roth should do the conversion before Dec. 31.

4 tax mistakes to avoid in 2019
Clients should avoid the mistake of not funding their traditional 401(k) and IRA next year, as this financial move can help reduce their taxable income and tax bill, according to this article on Motley Fool. Those who have side hustles should ensure that they make estimated quarterly payments on time to avoid hefty penalties, while others who incurred a substantial amount of deductible expenses such as mortgage interest and medical costs should consider itemizing deductions on their 2019 returns. Retirees who will be 70 1/2 and older next year should not forget to take the required minimum distributions to avoid a hefty penalty on top of taxes.

The following tips may help clients minimize their liability.
December 14

No-brainer tax break — if clients are old enough and have a traditional IRA
A qualified charitable distribution is an easy way for retirees 70 1/2 and older to meet the required minimum distribution rules of their IRAs and avoid owing taxes on the withdrawals, according to this article on San Francisco Chronicle. A QCD could mean a lower adjusted gross income, which could result in other tax benefits, says financial expert Ed Slott. “Reducing your AGI may reduce your Medicare premium surcharge, the amount of Social Security that’s taxable, and it could increase your medical deduction.”

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