Article Posted on 12/04/2018


Although there are only a few weeks left to go before the year ends, it's not too late to implement some planning moves that can improve your tax situation for 2018 and beyond. Here are some actions that clients can take before Dec. 31 to improve their overall tax picture.

Make HSA contributions. A calendar year taxpayer who is an eligible individual under the health savings account (HSA) rules for December 2018 is treated as having been an eligible individual for the entire year. Thus, an individual who first became eligible on, for example, Dec. 1, 2018, may then make a full year's deductible-above-the-line contribution for 2018. If the individual makes that maximum contribution, he or she gets a deduction of $3,450 for individual coverage and $6,900 for family coverage (those age 55 or older also get an additional $1,000 catch-up amount).

Result:  If you are in a 30% Federal and State tax bracket the $6,900 contribution would save you over $2,000

Take losses on stock while substantially preserving your investment position. If you have experienced paper losses on stock in a particular company or industry but want to keep the investment. You may be able to realize the losses on the shares for tax purposes and still retain the same, or approximately the same, investment position. This can be accomplished by selling the shares and buying other shares in the same company or another company in the same industry to replace them, or by selling the original holding then buying back the same securities at least 31 days later.

Result:  If you are in a 30% Federal and State tax bracket a $3,000 loss would save you over $900

If you are Itemizing deductions bunch deductible contributions and/or payments of medical expenses. Beginning in 2018, many taxpayers who claimed itemized deductions in prior years will no longer be able to do so. That's because the standard deduction has been increased and many itemized deductions have been cut back or abolished. A bunching strategy can help taxpayers get around the new reality—namely accelerating or deferring discretionary medical expenses and/or charitable contributions into the year where they will do some tax good. For example, a taxpayer who expects to itemize deductions in 2018 but not 2019, and usually contributes a total of $1,500 to charities each year, should consider making a total of $3,000 of charitable contributions before the end of 2018 (and skipping charitable contributions in 2019).

Result:  If you are in a 30% Federal and State tax bracket a $1,500 contribution would save you $450

Be sure to take required minimum distributions (RMDs). Taxpayers who have reached age 70-½ should be sure to take their 2018 RMD from their IRAs or 401(k) plans (or other employer-sponsored retired plans). Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. Those who turned age 70-½ in 2018 can delay the first required distribution to 2019. However, taxpayers who take the deferral route will have to take a double distribution in 2019—the amount required for 2018 plus the amount required for 2018. This strategy could make sense if you will be subject to a lower tax rate next year.

Wrap up a divorce. I hope that you are not dealing with this, but if you are alimony payments made under a divorce or separation agreement that is executed before Jan. 1, 2019, are deductible by the payor and included in the income of the payee. But if made under a divorce or separation agreement executed after Dec. 31, 2018, the payor can no longer deduct the alimony payments and the payee doesn't include them in income.

Where the payor of alimony is in a higher marginal income tax bracket than the payee, it is beneficial, for the divorcing spouses as a whole, for the alimony to be deductible to the payor and taxable to the payee. And, that benefit can be split between the two spouses by having the payor pay more alimony than the payor otherwise would pay if the alimony were not deductible to the payor. Thus, in most cases, couples in the midst of a divorce involving alimony payments should try to finalize that agreement by Dec. 31, 2018.

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