With the end of the tax year fast approaching, taxpayers are heading into the home stretch in the area of tax planning. Although there is less than a month left in 2018, there may well be some last minute opportunities available for saving valuable tax dollars. Because of the new higher standard deduction, several of these possibilities involve bundling deductions in order to make use of the tax advantage provided by itemizing. Others include making use of various tax sheltered accounts and managing capital gains. No matter what tax saving measures are employed, it is almost certain that ignoring such opportunities will result in paying a higher tax bill than would otherwise be the case.
The following are some tax saving measures that might be used to help to save tax dollars in the last few weeks of 2018:
· Maximize the Tax Benefits of Realizing Capital Gains and Losses
Since the IRS allows taxpayers to deduct up to $3000 of short-term capital losses against ordinary income, the end of the year is a good time to examine investment accounts to see if there are any losers that need to be dumped. In addition, taxpayers should look at potential capital losses with an eye toward canceling out capital gains that have been realized during the year. As always timing is important in making capital gains decisions. Whenever possible, net capital gains should be realized in years of lower income and net capital losses in years of higher income, a consideration that becomes especially important as the calendar year comes to a close.
· Utilize the Full Tax Benefits Provided by Retirement Accounts
IRA contributions, which are available to anyone who has earned income for the tax year in question, are tax deductible at both the federal and the state levels. This being the case, valuable tax dollars can be saved by maximizing the annual IRA contribution limit of $5,500. The same is true for 401(k) contributions which have an annual contribution limit of $18,500 with a limit of $55,000 for contributions from all sources. Since contributions to 401(k) plans are made with pretax dollars, they provide a valuable tax break by reducing a contributing taxpayer’s annual income by the exact amount of the contribution. Contributions to both traditional and Roth IRAs can be made up until the 2019 April 15th filing deadline while 401(k) contributions must normally be made on or before December 31st.
· Consider Bundling Tax Deductions
While the increase of the standard deduction from $6,350 in 2017 to $12,000 in 2018 provides a tax break to those who claim it, the increase makes it harder to achieve a tax advantage by itemizing deductions. As a result, many taxpayers are looking at the possibility of bunching into a single year tax deductions that would normally be spread over several years. Such deductions include such tax deductible items as mortgage payments, property taxes, medical expenses and charitable contributions, among other things. In every case, thought should be given to tax brackets as well as both present and future income before making a decision to postpone or accelerate any given tax deduction.
The licensed accountants and bookkeepers at Las Vegas Bookkeeping are experts in the area of tax planning and can help you implement tax strategies that will save you valuable tax dollars. Receive a free, no obligation consultation by emailing us at firstname.lastname@example.org or calling us at (702) 945-2757. Don’t hesitate! Let the tax professionals at Las Vegas Bookkeeping help you get your financial affairs in order so you can achieve that maximum possible tax advantage for 2018!