Your Year-End Tax Planning Checklist

As the end of the year approaches, it’s time to consider strategies that could help you reduce your tax bill. The largest tax-reform package since 1986 was passed at the end of 2017, and it has changed some conventional thinking on year-end tax planning strategies. For example, traditional strategies like prepaying state income and property taxes have become less effective than in years past.

The window of opportunity for many tax-saving moves closes on December 31, so it’s important to evaluate your tax situation now. Here are some things to consider.

Many people will not itemize deductions this year.

Many taxpayers who have itemized their deductions in the past will instead take the standard deduction in 2018, since the standard deduction roughly doubled over the previous year. This amount is $12,000 for single taxpayers and $24,000 for married couples.

Consider bunching charitable contributions.

If you are planning to itemize this year, but take the standard deduction going forward, you can still take advantage of the tax deduction this year by making several years’ worth of charitable contributions by end of year. Using a Donor Advised Fund lets you fund the account with several years’ donations, receive the tax deduction, and then distribute to your charities of choice over the next several years. Using appreciated stock contributions instead of cash will help you avoid income tax on the built-in gain in the security, while at the same time maximizing your charitable deduction. If you qualify, you should also consider utilizing a Qualified Charitable Distribution from your IRA as part of your charitable giving strategy.

The medical expense deduction threshold is going up.

Consider paying or prepaying any medical expenses before the end of the year, as the threshold for deducting the expenses is a more favorable 7.5 percent of adjusted gross income versus 10 percent in future years. Qualified medical expenses can include payments to physicians and dentists as well as prescription drugs and eyeglasses.

Evaluate your financial investments.

Implement tax-loss harvesting as a part of your investment management strategy. If you have capital losses in your portfolio that can offset other capital gain income, consider selling stock. You can avoid a “wash sale” transaction by waiting 31 days to purchase back a security you sold at a capital loss. Now is also an important opportunity to review asset allocation across all your portfolios to ensure that the most tax-efficient assets are placed in your taxable brokerage accounts and less tax-efficient ones are placed in tax-deferred or Roth accounts.

Review your retirement contributions. 

Contributions to retirement accounts are tax deductible, up to a certain amount. When considering annual contributions to your employer-provided retirement plan, plan for at least as much as needed to earn any matching contributions. If you currently contribute to an IRA, make the maximum deductible contribution for the year, as well as the full amount to a spousal IRA, if possible. If you qualify, you should also consider contributing to a Roth IRA.

Maximize gifts to transfer wealth.

Think about making gifts of up to $15,000 per person ($30,000 per married couple) per year, tax free. Gifts above this value will reduce your $11,180,000 lifetime gift/estate exclusion. Consider using assets that are likely to appreciate significantly for optimum tax savings and wealth transfer. Also, think about making contributions to your child or grandchild’s 529 plan before the end of the year to take advantage of any state tax deductions.

As always, these are my own opinions and suggestions, and they could change due to market or economic conditions, or other factors. It’s best to engage tax and legal counsel before taking action, as this commentary is not intended to serve as tax or legal advice.

When it comes to the year-end tax planning related to your investments, there’s always a lot to think about. Your Bartlett wealth advisor can help you consider your tax situation, alongside your other advisors, to determine which year-end tax-planning strategies make the most sense for you.