We are rapidly approaching the end of the year and the time to save on taxes is also rapidly decreasing. So what are some things you can do in this last week before the end of the year to help save you some unnecessary tax burden.
Before anything else, take a look at your finances: what does your income look like for the year? What do your expenses look like? What are your expected income and expenses for next year? If you own a business, does your business have a net profit or a net loss? The answers to all of these questions will help to determine what you are looking for in your tax strategy. Our general rule is to minimize your tax wile at the same time maximizing your wealth; and that goes for the current tax year and the next together.
Also, you will need to determine if you are itemizing your deductions or taking the Standard Deduction. In general, the Standard Deduction for individuals for 2018 is as follows:
- Married Filing Joint/Qualifying Widow(er) – $24,000
- Married Filing Separate/Single – $12,000
- Head of Household – $18,000
Age and other factors can also potentially increase this deduction.
If what you have spent on things like medical bills, mortgage interest, donations, state taxes, etc. does not come close to your Standard Deduction, you will most likely prefer to take the Standard Deduction and move on. If you come close to or are over this amount, you have a few things you may want to look into before year-end.
Donations – maybe, after all the Christmas gifts, you realize that you have some things you can do without! If you’re looking to give some stuff away and you could use some more itemized deductions, be sure to make your donations before December 31 in order to take the deduction for 2018.
Medical expenses – these expenses have a floor to overcome before you can start deducting them, and that floor is rising from 7.5% of adjusted gross income in 2018 to 10% in 2019. This means that you are more likely to receive more benefit for paying your medical expenses before year end 2018 than in 2019.
State and local taxes – note that these taxes must have been assessed already (before December 31, 2018) to be deductible. That being said, you can pay any assessed state and/or local tax, including estimated income tax, before the end of the year and have it count toward your 2018 itemized deductions. On the other side of the coin is that you cannot claim over $10,000 of these taxes for a deduction. If you are already over this limit, you may want to wait until after the end of 2018 in order to receive a better benefit in the next year.
Beyond itemized deductions, there are a few areas where you still have potential tax savings.
Investments – if you have investment losses that you don’t think will ever recover, sell them now to offset investment gains. Just be aware that there is a $3,000 cap on total losses over gains. In other words, if you have $3,000 in gains and $7,000 in losses, you can still only take $3,000 in losses in the current year and carry forward the remaining $1,000 to take in 2019. Consult your financial adviser first.
Higher Education – if you or one of your dependents is in college, you can go ahead and pay tuition bills to potentially increase the tax credit for higher education expenses.
Education Savings Accounts – many states, including Georgia, will give tax breaks for contributions to Education Savings Accounts, though these are not typically available for tax breaks at the Federal level.
There are also some potential tax savings regarding retirement accounts. We won’t go into them here, as many contributions can be made up until the due date of the return and still be counted for the prior year. For now, consult your financial adviser for more information.
If you own a business, there are some things for you to take a look at before the end of the year.
If you have something you need to purchase, buy it before December 31 in order to reduce 2018 net income. Credit card and check purchases count as though they are cash purchases for 2018, while agreements/promises to purchase will not qualify. If you are looking to increase net income for the current year, delay purchases until the beginning of next year, where possible.
You may also be able to defer income by delaying your invoicing until the new year. On the other hand, if you need to increase income, you may be bale to by invoicing before the end of the year.
All of these ideas and others are only potentially helpful to you. Not all options will necessarily be available for your situation, and it’s possible that there will be a better way for you to end up with more money in your pocket after filing your taxes. Consult us, or your particular tax preparer, for more information.
Thank you and Happy New Year!
-Heritage Accounting and Tax Services
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