Individual Year-End Tax Planning Reminders

by Megan Hiles
1040 form

December came fast and the end of the year is quickly approaching. Questions are still looming about how tax reform will impact both individuals and business but it’s not too late to make tax planning moves to improve your tax situation for 2018.

Here’s what you should consider before the clock strikes midnight on December 31:

  • The Standard Deduction vs. Itemized Deductions: Many taxpayers who have historically claimed itemized deductions may no longer find it beneficial and may opt to claim the standard deduction. This is because the basic standard deduction has been increased to $24,000 for joint filers, $12,000 for singles, $18,000 for heads of household, and $12,000 for married filing separately, and many itemized deductions have been cut back or abolished. This will result in many more taxpayers taking the standard deduction rather than itemizing.
  • HSA contributions: By making maximum contribution, you can get 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).
  • Paycheck Checkup: The IRS has encouraged everyone to perform a “paycheck checkup” due to recent tax law changes. The Withholding Calculator will help you make sure you have the right amount of tax withheld from your paycheck. To reduce running the risk of an estimated tax underpayment penalty, employees can ask their employers to increase withholding for their last paycheck or paychecks to make up or reduce the deficiency. Employees can file a new Form W-4 or simply request that the employer withhold a flat amount of additional income tax.
  • Required minimum distributions: Taxpayers who have reached age 70½ 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 Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn.
  • Use IRAs to make charitable gifts: People who must take required minimum distributions (RMDs) from their IRA accounts who are eligible for the standard deduction can direct some of their RMD to go to a charity. Such a transfer (not to exceed $100,000) will neither be included in gross income nor allowed as a deduction on the taxpayer’s return.
  • Finalize a divorce: 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.
  • Make year-end gifts: A person can give any other person up to $15,000 for 2018 without incurring any gift tax. The annual exclusion amount increases to $30,000 per donee if the donor’s spouse consents to gift-splitting. Anyone who expects eventually to have estate tax liability and who can afford to make gifts to family members should do so. Besides avoiding transfer tax, annual exclusion gifts take future appreciation in the value of the gift property out of the donor’s estate, and shift the income tax obligation on the property’s earnings to the donee who may be in a lower tax bracket (if not subject to the kiddie tax).

Please call us with any questions! We want to make sure that all of our clients are in the best possible position as we move into tax season!