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Time to Plan Your Year-End Taxes

Time to Plan Your Year-End Taxes

December 27, 2018

The Tax and Jobs Cut Act presented sweeping changes, introducing benefits to all classes of Americans. Below are some of the most important tax law provisions you should be aware of as we enter the 2018 tax reporting season.

Some of the new tax laws may benefit you, some may not. It’s important to consult with your financial advisor or CPA to ensure your tax return is correct when filed. We don’t need to warn you of the penalty for misrepresenting your information—because, everyone knows not to mess with the IRS!

2018 Income Tax Brackets and Rates

10% Individuals: $9,525; Married filing jointly: $19,050

12% Individuals: $9,526; Married filing jointly: 19,051 to $77,400

22% Individuals: $38,701 to $82,500; Married filing jointly: $77,401 to $165,000

24% Individuals: $82,501 to $157,500; Married filing jointly: $165,001 to $315,000

32% Individuals: $157,501 to $200,000; Married filing jointly: 315,001 to $400,000

35% Individuals: $200,001 to $500,000; Married filing jointly: $400,001 to $600,000

37% Individuals: Over $500,000; Married filing jointly: Over $600,000

Make Contributions to Your IRA or 401(k)

Contributions to your IRA are tax-deductible and can relieve your tax liability. The deadline for you to open and/or contribute to an IRA for inclusion on your 2018 tax return is April 17, 2019 (this date varies by state). You must adhere to the contribution limit ceiling of $5,500 (with a $1,000 catch-up contribution for those 50 and over) for 2018. (Thankfully, the IRS has raised that limit to $6,000 for 2019, so keep that in mind for next year!) If you own two different IRAs, such as a traditional and a Roth IRA, you can contribute amounts to both accounts—but combined total of those contributions may not exceed the limit. Plan to max out the contribution to your IRA if you want to reap the full earning potential of the account.

If you have a 401(k) or similar plan (such as a 403(b), 457, or TSP) you also want to try to contribute as much as you can to facilitate your retirement income goals. The more money you have in the account, the greater the growth potential. The max contribution for 401(k)s is a whopping $18,500, but if you are 50 and over, that limit rises to $24,500. So, contribute as much as you can to make it work for you!

Evaluate Your Required Minimum Distributions from Your IRA

Once you turn 70 ½ years of age, you’re required to take required minimum distributions (RMDs) from your IRA. The amount you cash out for this purpose depends on your age, account balance, and your life expectancy. You must take your first RMD by April 1 of the year after you reach 70 ½ years of age and your second RMD by December 31. Moving forward, you must take

Barri Van Coulter Pantheon Wealth Planning Blog December 2018

your RMD before December 31 every year. If you don’t take your RMD, the penalty is 50% of the amount you are supposed to takeout, so don’t fail to do so!

Don’t Forget Your Flexible Spending Account

This is the time of year you should evaluate your use of the funds in this account in case you have to specify a different salary deferral for next year. And, remember, depending on how your employer structured the Flexible Spending Account (FSA) you may lose any unused funds at year’s end. Withdrawals are tax-free provided funds are spent on qualified child care, medical and dental expenses. The contribution limit for this account is $2,650 for 2018.

Charitable Donations Add Up

If you itemize, you may be entitled to a tax deduction if you made a charitable gift to a qualified organization. Although there is a cap on these donations to the tune of about 50% of your adjusted gross income (AGI), in some instances lower limits may apply. The real cost of the gift lowers as your income tax bracket increases—which is why many wealthy people enjoy giving quite a bit.

Make an Accelerated Mortgage Payment

This can be an excellent way to reduce a bit of your tax bill. Many people pay their January mortgage in December to get ahead and to reduce their tax liability. Your January statement is simply a bill for December reflecting the interest from 2018. If you pay that early, the payment is attributed to 2018’s expenses and can present a new deduction for that year.

These changes are just the highlights we think you should know. Of course, your tax liability and preparation both depend on your individual (or married!) situation. We strongly encourage you to seek the help of a professional to navigate these changes sufficiently before filing your income tax. You don’t want to miss a potential break you may be entitled to.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor