November 19, 2018 10:12 pm

End of Year Tax-Saving Strategies

As 2018 draws to a close, consider taking certain actions to favorably impact your tax bill for the year. Here are 10 things you can still do:

1.    Review withholding and estimated taxes

If you anticipate that you’ll owe taxes when you file your return, you may avoid underpayment penalties by asking your employer to withhold a lump sum from your final paycheck. If you don’t have a paycheck, you’ll need to adjust your final estimated tax payment for 2018, which is due on January 15, 2019.

2.    Use up FSA contributions

If you put money into a medical or dependent care flexible spending account (FSA) for 2018, you must use it or lose it. Check with the plan administrator to see whether there’s any grace period (e.g., to March 15, 2019) in which you can use up your 2018 contributions. For medical FSAs, find out whether there’s a carryover of up to $500 in lieu of a grace period.

Note: Before the start of the year sign up for 2019 FSA salary reduction contributions if you have the opportunity to do so.

3.    Sell losing securities

If you have or expect 2018 capital gains and also have securities that you could sell at a loss, sell enough of the loss securities to offset the gains and if possible, produce a capital loss that exceeds the capital gains by at least $3,000 ($1,500 if you’re married and file separately). Excess losses up to $3,000 (or $1,500) can offset ordinary income. If net losses are greater than the $3,000 (or $1,500) limit, the losses over the limit will carry over to future years.

Note: Watch for the wash sale rule that bars a loss deduction if you acquire substantially identical securities within 30 days before or after the date of sale.

4.    Make cash donations to charity

If you think you’re going to itemize deductions for 2018 rather than take the standard deduction, act now. If you charge contributions to a credit card by December 31, you can deduct them this year (up to 60% of your adjusted gross income) even though you pay the credit card bill in 2019. If you mail contributions before the new year, you can deduct them even though the charity cashes the check in 2019.

Remember to obtain required contemporaneous written acknowledgments from the organization(s) for any donation of $250 or more, plus receipts or canceled checks for smaller donations.

5.    Use appreciated securities for charitable donations

Doing this allows you to avoid capital gains tax, while being able to deduct the value of the securities. This rule only applies to securities held for at least one year and a day.

6.    Obtain last-minute medical care

Again, if you’re itemizing and your out-of-pocket medical costs to date are near or over the 7.5%-of-adjusted gross income threshold, consider discretionary medical spending (e.g., prescription sunglasses, a year’s supply of contact lenses).

7.    Prepay college tuition

If you have a student with a semester starting in January, February, or March 2019, paying tuition now entitles you to take the American opportunity credit on your 2018 return.

8.    Set up a retirement plan for a gig activity

If you have a sideline business, you may save for retirement on a tax-advantaged basis. As long as you sign the paperwork for a 401(k) plan by December 31, 2018, you’ll be able to make a deductible contribution for 2018 by the due date (including any extension) of your 2018 return.

9.    Take your RMD

If you’re age 70½ or older (or a beneficiary of an IRA or retirement account), don’t forget to take your annual required minimum distribution. If you attained age 70½ in 2018, you can delay your first RMD to April 1, 2019, but you’ll have to take your second RMD by December 31, 2019.

10.    Use a qualified charitable distribution

If you’re age 70½ or older, you can avoid tax on an RMD by transferring it directly to a public charity. The transfer, which counts toward your RMD, is tax free; no charitable contribution deduction is allowed. This is called a qualified charitable distribution (QCD). The annual tax-free limit for QCDs is $100,000.

Conclusion

Talk with your CPA or other tax adviser about other savvy tax moves you can make before 2018 is over.