There has been a lot of confusion and premature calculating as to how the changes in the new tax law are going to affect next year’s returns for both businesses and individuals. With the year almost up, we are working with clients to assist them with making smart end-of-year decisions as to how they can reduce their taxes. Here are some tips we are suggesting to clients filing business and individual returns:
There is still time before this year ends to make additional pretax contributions to your employer-sponsored 401(k), 403(b) or other workplace retirement plans. For those whom have not already contributed the maximum amount for the year, consider making an additional contribution. It reduces your taxable income, which in turn, reduces your taxes.
Selling stocks that have losses before the end of the year can offset your capital gains. The netting of capital gains and losses may lessen your end tax bill. Consult with your financial advisor/planner – if you’re an Avrio Solutions client, we can also help.
If your employer provides a Health Savings Account (HSA) and you have not made the maximum contribution for 2018, consider doing so. Note the maximum contribution for a single person filing is $3,450, married is $6,900. If you are over 55 you can make an additional $1,000 “catch-up” amount. These are pretax deductions from your wages.
Some taxpayers are eligible to use a “bunching strategy” under the new tax law. This strategy can be used for charitable contributions and medical expenses. As the new tax law created a higher standard deduction, it will also limit an individual’s ability to itemize their deductions. In limited circumstances you can bunch your charitable contributions from one year to the next. This means you can claim an additional deduction by making some of your anticipated 2019 charitable donations before the end this year. The same is true for anticipated medical expenses. If you are able, you can “bunch” some of your anticipated 2019 expenses into your 2018 returns.
Again, this is a limited strategy and should be done under the advice and counsel of your accountant.
For Business Owners
If your business is showing more revenue this year, congratulations! Consider deferring the anticipated revenue from 2018 to 2019. There are acceptable methods for this, so please consult with the Avrio Team.
If your future plans include equipment purchases next year, consider making them now, before the year is out to get the most of the allowable deductions. The depreciation expensing rules are very generous, so an asset purchased and placed into service by the end of this year may be fully deductible in this year.