Tax planning: 2018 year-end checklist

Your Guide to State, Local, Federal, Estate + International Taxation

tax planning, year-end, 2018Only one month remains in 2018, but you still have time to think about your 2018 taxes. Consider if these tax planning items could affect you and your family.

  • Will you claim the standard deduction or itemize in 2018?
    • The standard deduction has gone up to $12,000 for single filers and $24,000 for married filing joint. This means many taxpayers will no longer itemize.
    • Changes to itemized deductions in 2018:
      • Taxes are limited to a $10,000 deduction each year (this doesn’t include taxes related to your business or rental property).
      • There’s no deduction for employee business or investment expenses.
      • Interest on a home equity loan is only deductible if the loan proceeds were used to buy or improve your home.
      • The interest deduction is limited to mortgages of $750,000 (post Tax Cuts and Jobs Act)
    • Strategies to get bigger deductions
      • “Bunching” involves making larger charitable donations or prepaying your state income and real estate taxes (if you are under the $10,000 limit) every other year.
      • Use a donor advised fund (DAF) to make a large charitable donation in one year so you can itemize.
        • Use your DAF to make donations to your favorite charities in years you claim the standard deduction.
      • Donate appreciated stock held at least one year to escape tax on the appreciation while getting a charitable deduction for the market value.
  • If you are 70 ½ and take your required minimum distribution (RMD) from an IRA, consider a Qualified Charitable Distribution (QCD) to your favorite charity. You won’t owe tax on the RMD and it’s especially beneficial if you claim the standard deduction.
  • Make safe harbor tax payments for 2018. The tax rates are lower, but have you paid in enough tax in 2018? Check your federal and state tax withholdings before year-end. Compare them to the 2017 amounts. New withholding tables may mean you are under-withheld. The IRS has a tool to help.
  • Review your investment portfolio before year-end. Are there any loss positions that should be sold before year-end to offset gains?
  • Maximize your employer benefits. Max your retirement plan contributions, fund health savings accounts, use up your flexible spending account and reimburse child care using your dependent care benefits.
  • 529 plans can now pay for elementary and secondary school tuition (limit $10,000 per year).
  • No (or very little) taxable income in 2018? Consider a Roth conversion of your IRA, but be sure, as you can no longer “un-do” a Roth conversion.
  • Have your estate planning documents been reviewed in the last few years? The annual gift exemption is $15,000 per person in 2018 and 2019 and the estate tax exemption is $11.4 million per person or $22.8 million per couple. The very high estate tax exemption amounts may mean changes are needed to your planning.
  • Take advantage of the Arizona $1 for $1 tax credits. You can benefit your favorite school and charity and offset your Arizona tax. **Change in 2018** Donations made for AZ tax credits no longer qualify as a charitable tax deduction on your federal tax return as of August 28, 2018. See our blog for more details.

There’s a lot of tax changes to consider for 2018 and smart tax planning before year-end could help you save.

Melinda Nelson, CPA