2018 Tax Moves to Try Before the Holidays Arrive

The 2017 Tax Cuts and Jobs Act will have an impact on many Americans filing their 2018 tax returns. Tax brackets have been lowered, the standard deduction has doubled and expenses that formerly qualified as deductions have been reduced or cut altogether.

To take advantage of these changes, it’s important to quickly get your financial house in order. Take time in November to make several strategic changes that may save hundreds, possibly thousands, of dollars in taxes. In many cases, these transactions will involve other parties, which is the reason to move forward now.

Look into Whether You Can Skip That Last Estimated Payment.

For people who make quarterly estimated tax payments, particularly those who are self-employed or retired, they may be able to lower or skip their fourth-quarter tax payment. Why? With lower tax rates in 2018, their total tax bill may be less than last year. For example, a single taxpayer making $200,000 annually could see their tax bill cut by $5,000 or more.

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Work with your accountant to determine whether you need to make a fourth-quarter estimated tax payment. If not, you may have some extra cash for holiday spending.

Donate Stocks as Charitable Gifts.

The Standard & Poor’s 500-stock index grew 22% last year, and a number of U.S. stocks have had positive returns this year, especially highfliers such as Apple (AAPL) and Amazon (AMZN). If your stock portfolio has grown significantly, it could be a good year to donate some stock as a charitable gift to a nonprofit organization and receive a tax deduction.

Because the standard deduction for married couples is now $24,000, and deductions for state, local, and property taxes are limited to $10,000, a couple with no mortgage may need to donate at least $15,000 to charity to receive the itemized tax deduction. Making a gift to a donor advised fund and donating money out this fund over the next few years to benefit your favorite charities is a great tax strategy. Start this process before Thanksgiving to ensure financial institutions have plenty of time to process these transactions before the end of the year.

Harvest Tax Losses.

This strategy involves selling stocks that have experienced losses. By realizing or “harvesting” a loss, investors are able to offset tax gains in other parts of their portfolio. The security that is sold can be replaced by a similar one, maintaining the asset allocation.

After a solid year of returns in 2017, international stocks are faring much worse than U.S. stocks this year and may be ripe for this strategy. The international stock index as represented by the MSCI EAFE is down about 11% year-to-date through Oct. 30, with emerging markets down about 17%. Even some U.S. stocks are down sharply this year through Oct. 30, such as Goodyear Tire (GT), down about 33% and L Brands (LB), down 45%.

Review Your Will.

The estate exemption doubled in 2018 to about $11.2 million for singles and $22.4 million for married couples. If your net worth is less than these amounts and there are trusts in your will that must be funded upon death, it may be that you don’t need those trusts anymore. This can help simplify your estate plan and even lower income taxes for your heirs. However, there are many other non-tax benefits of having trusts, so consult with your attorney before you assume a change is needed.

Rest In Pieces, AMT

Make Cash Gifts to Family Members.

For those who give cash gifts to family members at the holidays, the annual gift tax exclusion amount increased by $1,000 in 2018, to $15,000 per person. This is the first time in five years the annual gift tax exclusion has increased. Two common ways to make these annual exclusion gifts are with cash or stocks from your portfolio that you transfer to family members. Ownership in a family partnership can also be transferred using the annual gift tax exclusion strategy.

There are plenty of other standard tactics that are largely unaffected by the new tax law. People should continue to take these actions and realize the financial and tax benefits. The most common ones are:

Make the Maximum 401(k) Contribution.

The limit on 401(k) contributions increased by $500 in 2018, so make sure you’re on track to contribute up to $18,500 for those under age 50, and $24,500 for those age 50 and over. Many people can increase their contributions by adjusting their payroll deductions through their human resources department or their company’s online system.

Fund your Individual Retirement Account (IRA).

The law allows contributions of $5,500 for those under age 50 and $6,500 for those age 50 and over. Saving into a traditional IRA or Roth IRA is a disciplined way to meet an annual goal of saving for retirement. Once April 15, 2019, has passed, contributions can no longer be made for the 2018 tax year. So, do this before year’s end to ensure it gets done.

Top Off Health Savings Accounts.

For people with high-deductible medical plans, this is a terrific way to save on taxes. For individuals, the 2018 maximum contribution amount is $3,450 and for families it’s $6,900. People ages 55 and older can add an extra $1,000 annually.

All Aboard the Tax Volatility Train

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Lisa Brown, CFP®, CIMA®, is author of "Girl Talk, Money Talk, The Smart Girl's Guide to Money After College” and “Girl Talk, Money Talk II, Financially Fit and Fabulous in Your 40s and 50s". She is the Practice Area Leader for corporate professionals and executives at wealth management firm CI Brightworth in Atlanta. Advising busy corporate executives on their finances for nearly 20 years has been her passion inside the office. Outside the office she's an avid runner, cyclist and supporter of charitable causes focused on homeless children and their families.