Six Things You Can Still Do for Your Year-end Financial Planning

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There are still a few weeks to go before we step into 2019 and that means you still have opportunities to make sure you’ve done what you can to take advantage of some financial benefits. While the Tax Cuts and Jobs Act of 2017 (TCJA) made prepaying taxes less attractive due to low deduction limits (this deduction is now capped at $10,000 total for both property and state income taxes or sales taxes), there are still some things you can do to reduce taxes and increase your financial health going in to 2109:

Max out company retirement plan contributions. You still have the opportunity to bolster your savings, and reduce taxes by maxing out, or at least contributing as much as possible to, your 401(k) plan. You can increase your contribution from your final paycheck —up to the $18,500 for 2018, ($24,500 if you are age 50 or over) to top of your annual contribution amount. In most cases you can make this change online through your company’s 401(k) website, though you may need to contact your HR team.

Open a small business retirement account. If you are self-employed you can open a qualified retirement account by Dec. 31, and you’ll have until the day you file your taxes next year, including extensions, to make this year’s contribution. A solo 401(k) plan has become a popular plan for the self-employed and allows total contributions of up to $55,000 for 2018 ($61,000 for those over age 50).

Review required minimum distributions (RMD) from your IRA. Although this mostly applies to those over 70 1/2 it may also apply if you have inherited an IRA. If you do not take the amount required, the penalties are quite onerous: a 50% tax on the amount you should have withdrawn based on your age, life expectancy, and the amount in the account at the beginning of the year.  One technique, a Qualified Charitable Distribution (QCD) allows you to avoid the tax on your RMD by making a gift up to $100,000 directly from your IRA to a charity. If you use it, you swap having to claim the income for making a charitable deduction.

Complete some tax-loss harvesting in your taxable investment accounts. You can reduce taxes on investment gains through tax-loss harvesting. This is something we do as we manage our client portfolios and it helps to offset realized, or future, capital gains with realized capital losses. By promptly replacing the investments that are showing a loss with a similar (but not identical) position you can retain your long-term asset allocation. This is important because the “wash sale rule” is triggered when an investment is sold at a loss and the same or “substantially identical” investment is purchased either 30 calendar days before or after the sale. If a transaction is deemed a wash sale, any tax savings from tax-loss harvesting are recaptured.

Finalize your charitable donations and take advantage of strategies that are most beneficial to you and the charity. If you itemize your taxes, donating to charities from a taxable account can reduce your tax bill. This is particularly true if you can contribute appreciated securities you have held in your account for at least a year. This not only entitles you to a tax deduction, but also allows you to help eliminate the capital gains tax.

For all non-cash charitable contributions, you’ll need a receipt that includes a description of the item and other details. Cash donations require receipts over $250. Donations for the current tax year must be made by December 31. You might also consider a donor-advised fund (DAF) which allows you to contribute and qualify for a tax deduction, but you can send out the money to the charities over time to any IRS qualified charity.  A donor-advised fund also allows the donation of appreciated securities.

Check your flexible spending balance. If you’ve taken advantage of an employer-sponsored flexible spending account (FSA) check to see if you have a grace period permitted by the IRS, allowing employees to spend 2018 set-aside money as late as March 15, 2019. If not, you’ll need to make sure the balance is spent by year-end, so you may want to stock up at the drug store, or make those final dental and optometrist visits or other eligible expenses.

There are still several opportunities to maximize your year-end financial benefits if you act quickly. Private wealth clients should use the Advisory Group as a resource; if you have questions about these options do not hesitate to reach out to discuss them.

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