A Few Possible Year-End Tax Planning Moves
There are still some tax planning moves available before the end of 2018. Of course, more are available if you have a business. Below are just a few.
Get More Tax Benefits from Charitable Contributions
Beginning in 2018, itemized deductions have been severely limited in several ways. At the same time, the standard deduction has been increased from $6,350 to $12,000 for those filing as single and from $12,700 to $24,000 for those filing as married filing jointly.
Taxpayers may get a tax benefit from making charitable contributions, depending on how many itemized deductions are available to them in relation to the standard deduction that they get either way.
If a taxpayer’s charitable contributions do not cause his or her itemized deductions to be higher than their Standard Deduction, then he or she gets no tax benefit from making the contribution.
If a taxpayer makes a larger charitable contribution in 2018, he or she might get over the hurdle of the standard deduction and thus receive a net tax benefit. He or she could then hold off from making charitable contributions for a few years and, in a later year, again make a larger contribution bunched into one tax year.
If you want to put your charitable contributions on steroids:
Donate appreciated stock rather than cash.
Donate your required minimum distribution (RMD) directly from your traditional IRA.
Donate to a donor-advised fund.
Create and donate to your own charitable foundation.
Last-Minute Equipment Purchases
Businesses still have several tax benefit opportunities if they purchase equipment that is placed in service in 2018.
Set Up a Qualified Plan
There are many types of qualified retirement and deferred compensation plans. Traditional plans (but not Roths) allow taxpayers opportunities to get an up-front tax benefit from contributions. This could allow them to put significant amounts of money into a plan and also reduce their taxable income. Many of those plans must be established by December 31, 2018, in order be available for 2018 (even if the contributions themselves could be made in 2019). There are other plans that can be established prior to April 15, 2019, and still work for 2018.
Trigger Tax Gains or Losses
Those who have investments might have in their portfolios some investments that would trigger a gain if they were sold and some that would trigger a loss if they were sold.
In some situations, a taxpayer might want to trigger a gain by selling an investment by December 31, 2018 (for example, when the taxpayer has loss carryovers into 2018). In other situations, a taxpayer might want to trigger a loss by selling certain investments by December 31, 2018 (for example, when the taxpayer has already recognized gains earlier in the year or from capital gain distributions).
By the way, do not undo the tax benefits of triggering losses by repurchasing the same investment in violation of the “Wash Sale” rules.
Meet with your investment advisor and tax advisor to review your situation.
Many shareholders of S corporations are also employees. There may be a strategy as to how much and when wages are declared and paid to you. This is particularly important beginning in 2018 due to the new Internal Revenue Code §199A “20% Deduction” available to some types of S corporations (watch out for the limitations if you are in certain types of “service” businesses). Of course, you still need to follow IRS guidelines as to “reasonable compensation.”
There are still some tax planning moves available to those who want to take the time and effort to make them happen before December 31, 2018.
For more information on Tax Law, see STATE AND LOCAL TAXATION — 2017 EDITION. Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.