Each year with the changing of Daylight Savings we receive public service announcements to change our smoke detector batteries. With the same enthusiasm financial professionals encourage their clients to review a checklist of year end planning items. Below is a summary of financial issues that you should consider reviewing taking action on.
Consider any opportunities you have to defer income. For example, you may be able to defer a year-end bonus, or delay the collection of business debts, rents, and payments for services. Doing so may allow you to postpone paying tax on the income until next year. If there's a chance that you'll be in a lower income tax bracket next year, deferring income could mean paying less tax on the income as well.
Similarly, consider ways to accelerate deductions in the current year. If you itemize deductions, you might accelerate some deductible expenses like medical expenses, qualifying interest, or state and local taxes by making payments before year-end. Or you might consider making next year's charitable contribution this year instead.
Sometimes, however, it may make sense to take the opposite approach — accelerating income into the current year and postponing deductible expenses to the next year.
Family tax planning
• Determine whether you can shift income to family members who are in lower tax brackets in order to minimize overall taxes.
• Consider making gifts of up to $15,000 per person federal gift tax free under the annual gift tax exclusion. Use assets that are likely to appreciate significantly for optimum income tax savings.
• If you have qualified student loans, you may be entitled to take a deduction for the interest you paid during the year. The maximum amount you can deduct is $2,500.
Financial investments
• Try to sell only assets held for more than 12 months.
• Consider selling stock if you have capital losses this year that you need to offset with capital gain income.
• If you plan to sell some of your investments this year, consider selling the investments that produce the smallest gain.
• Manage year end mutual fund capital gain distributions from Non-Qualified accounts.
Retirement contributions
• Try to avoid premature IRA payouts to avoid the 10 percent early withdrawal penalty (unless you meet an exception).
• Take full advantage of tax-advantaged retirement savings vehicles by making the maximum deductible contribution. For 2018. you can contribute up to $18.500 to a 401 (k) plan ($24.500 if you're age 50 or older) and up to $5.500 to a traditional IRA or Roth IRA ($6.500 if you're age 50 or older). The window to make your contributions to an employer plan typically closes at the end of the current year, while you generally have until the April tax return filing deadline to make your prior year IRA contributions.
• Set up a retirement plan for yourself, if you are a self-employed taxpayer. Contact our office for contribution limits and details on available qualified plans including Simple, SEP and Defined Benefits plans.
• Contribute the full amount to a spousal IRA. if possible.
• Set up an IRA for each of your children who have earned income.
Roth conversions
• Year-end is a good time to evaluate whether it makes sense to convert a tax-deferred savings vehicle like a traditional IRA or a 401(k) account to a Roth account.
Required minimum distributions
• Once you reach age 70/4. you're generally required to start taking required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans.
Charitable Donations
• Make a charitable donation by the end of the year. Remember to keep all of your receipts from the recipient charity. Consider using appreciated stock rather than cash when contributing to charities. If close to the year- end deadline use a credit card to make contributions in order to ensure that they can be deducted in the current year.
College Savings Plans
• Consider funding College Savings or 529 plans for your children, grandchildren or other family members. The lump sum amount that an individual can gift into a 529 plan is $75,000 and joint filers can gift $150.000 per beneficiary. While reducing your taxable estate your beneficiaries' account earnings and withdrawals for qualified higher education expenses are distributed tax free. State tax deductions are State specific, be sure to verify limits. For additional information and rules about College savings plans contact our office for a consultation.
Qualifying Health Insurance Coverage
• If you didn't have qualifying health insurance coverage in 2017, you are generally responsible for the "individual shared responsibility payment" (unless you qualified for an exemption).
Company Benefits
• Consult with your company's human resource department for a better understanding of your benefits and enrollment deadline dates.
Beneficiary Review
• Review with your financial institutions and employer that you have your appropriately designated beneficiaries on your retirement plan, investment accounts, banks accounts and life insurance.
Flexible Spending Accounts
• Be sure to use your Flexible Spending account reserves prior to deadline date. Review 1RS Publication 502 for allowed expenses.
Be sure to consult with your accountant or tax professional. Your tax professional should advise you on the best filing status for your family structure, whether to take a standard deduction or to itemize, advise you on employee and medical deductions, property sales, business income and expensing. This information is not intended to be a substitute for specific individualized tax advice.
We at Vertex Wealth Management. LLC are proud to be a resource to you. For more detailed information about Tax Planning Strategies and other financial subjects, kindly contact our office at (516) 294-8200 for an initial complimentary financial consultation.
Sincerely.
Michael J. Aluotto, CRPC®
Vertex Wealth Management. LLC
President
Private Wealth Manager