2018 Year-End Considerations

Looking for last minute tax savings? Here’s some ideas to consider by December 31st, 2018:

· Boost pretax contributions to your 401(k) or similar retirement plan to reduce your income

· Ask if a year-end bonus can be paid out next year instead of this year

· If you are an independent contractor, reduce your income by making year-end purchases of tax-deductible expenses such as equipment and supplies

· Also, hold off on collecting on unpaid invoices until next year

· Sell off investment positions with unrealized losses to reduce capital gains

· Hold off selling profitable positions until next year

· Bunch your charitable deductions, meaning, if you are still itemizing, consider making your contributions this year rather than next year. It might make more sense to itemize this year rather than next year because these standard deductions are indexed for inflation and can be expected to increase slightly.

· Pay your January mortgage payment in December

· Make an estimated payment to avoid penalty. The rule is that you pay 100-110% of your tax liability for the current year, based on the previous year liability. If you find you are coming up short, you can make a fourth quarter tax payment on January 15th to help offset any penalties.

· Going into 2019, you will need to change your withholding by filling out a new W4 and submitting it to your payroll department. We can discuss this more at tax time.

As a refresher, here are some of the changes to itemized deductions for 2018 and going forward under the Tax Cuts and Jobs Act of 2017:

2018 itemized deductions There are numerous changes to itemized deductions to be aware of under the new law. Note that states vary widely in how they treat itemized deductions for individual taxpayers under state income tax laws.

Pease Limitation With the passing of the Tax Cuts and Jobs Act, the limitation on itemized deductions is temporarily repealed for tax years beginning on January 1, 2018. The repeal does not apply to taxable years beginning after December 31, 2025.

Mortgage interest For any acquisition indebtedness incurred after December 14, 2017, interest would only be deductible for loan amounts not exceeding $750,000 (for married filing jointly). As under current law, the acquisition debt limit applies in aggregate on up to two personal residences. Existing mortgages as of December 14, 2017 continue to be subject to the current $1,000,000 limitation.

Home equity loans Interest will no longer be deductible on a home equity loan after 2017 unless the proceeds are used to substantially improve a home, and therefore meet the definition of acquisition debt.

State and local income, sales, and property taxes The law permits individual taxpayers to deduct up to $10,000 for any combination of state and local income taxes, property taxes and sales taxes. Taxes in excess of $10,000 are not allowed as a deduction on schedule A.

Miscellaneous itemized deductions Deductions for miscellaneous itemized deductions subject to the two percent floor (including tax preparation fees, investment expenses and unreimbursed business expenses) are repealed.