What You Need to Know About the New Tax Laws

Here are some strategies to use by the end of the year so that you can use the tax reform laws to your advantage.

• Reduce Your Taxable Income
  • Max out your 401(k) by December 31^st
    • Up to $18,500, or $24,500 if you are 50 or over!
  • Contribute up to $55,000 into a SEP IRA for  2018
    • This is only applicable to those who are self-employed.
  • Miss the December 31^st deadline? You can still contribute to your IRA and get a tax deduction.
    • This tip is good until the tax filing deadline, up to $5,500 or $6,500 if you are 50 or over.
  • Contributing to your retirement may also make you eligible for a Saver’s Credit of up to $1,000 (or $2,000 if you are married and filing jointly)!

• Be Generous
  • Instead of donating cash, choose appreciated stock or property to supercharge your tax benefits.
  • You get DOUBLE the benefit if you have owned the asset for more than one year, by deducting the property’s marked value on the date of the gift. This way, you also avoid paying capital gains tax on the appreciation.
  • It’s important to remember that you MUST have a receipt to back up any contribution of any amount.

• Pre-Pay for College
  • If you pay for college courses for the first quarter/semester of 2019 by December 31^st, you may be eligible for the Lifetime Learning Credit of up to $2,000 per return.
  • This may also be applicable if you are paying for another college student in your family.
    • This would be through the American Opportunity Tax Credit of up to $2,500 for the first four years of college.
  • Student loan interest can also be deducted up to $2,500 if you are making payments.

• Loss Harvesting
  • Sell investments to offset taxable gains – dollar for dollar.
  • If you still have a net loss, up to $3,000 can reduce other taxable income.
    • More than $3,000 can be carried over to the next tax year!

• Postpone Income
  • While it may be difficult to postpone wages or salaries, try to defer a year-end bonus to be paid out in January. Just make sure this is standard practice for your company.
  • If you are self-employed or are a freelancer/consultant, you can delay billings until late December to ensure you don’t receive payment until 2019.
  • Keep in mind that if you anticipate additional income for the 2019 tax year, it could push you into a higher tax bracket. In that scenario, you may end up paying higher taxes next year, so use this tip with caution.

• Make the Most of Your Flex Spending Account
  • Flex accounts avoid income tax and social security taxes. As you may know, you lose anything you don’t use.
  • Your employer may allow you to spend money set aside in 2018 as late as March 15, 2019, if they have a grace period as permitted by the IRS.
  • If all else fails, you can try using up your funds before the end of the year to avoid losing the excess.

• Maximize Deductions if You Can No Longer Itemize
  • The standard deduction has increased this year, up to $12,000 (or $24,000 if you are married and filing jointly). If your deductions are right at those max amounts, here are some options for you:
    • Donate more to charity
    • Use donor-advised funds for charitable donations, instead of bunching donations – you can recommend how to distribute the money to your favorite charity.
    • Bunch itemized deductions, but keep an eye on anything that is deductible over 7.5 percent of your AGI for 2018. If you are almost there, getting in a last minute doctor visit can help.

These following apply to deductions that have been eliminated.

• Moving Expenses
  • The new tax laws do not allow job-related moving expenses to be deducted unless you are an active duty member of the military. Instead, negotiate a moving reimbursement with your employer.
  • Keep in mind that you can still deduct mortgage interest and property taxes.
    • There is a cap of $10,000 for property taxes, state income, and state and local taxes combined.
• Dependent Exemption
  • The $4,050 dependent exemption is no longer allowed. However, if you send your kids to camp over the holidays while you work, you can get a Child and Dependent Care Credit of up to $1,050 for one child or $2,100 for two or more children.
  • The child tax credit has also been doubled to $2,000 per dependent under 17.

• Employee Expenses That Are Not Reimbursed
  • Itemization of miscellaneous expenses, such as for classes, have been eliminated.
  • You can still take advantage of educational tax credit like the American Opportunity Tax Credit (up to $2,500) or the Lifetime Learning Credit (up to $2,000).