Year-end Tax Planning in Light of Tax Reform

Year-end tax planning helps taxpayers to reduce their tax obligations and to understand their tax positions. However, changes resulting from the Tax Cuts and Jobs Act (TCJA) have added challenges for taxpayers. Find out what you should consider before year-end.

 

Year-end tax planning helps taxpayers to reduce their tax obligations and to understand their tax positions. However, changes resulting from the Tax Cuts and Jobs Act (TCJA) have added challenges for taxpayers. Find out what you should consider before year-end.

In light of the changes made by the tax reform law, taxpayers should consider a few important items when approaching year-end planning:  
 

Retirement planning

The fourth quarter is an excellent time for taxpayers to review their retirement contributions for the current year and make adjustments to increase or maximize their contributions. Individual taxpayers can save current taxes by investing in their 401(k) retirement plans. The contribution limit was increased to $18,500 for 2018, plus an additional $6,000 for taxpayers age 50 and over. Contributing to a traditional IRA may also be an option to save, as taxpayers can deduct contributions up to $5,500. Individual taxpayers have until mid-April of 2019 to make contributions for the 2018 tax year. Business owners also have several options that can provide even higher contribution levels. However, planning before year-end is critical to ensure proper administration.
 

Payroll deferrals and withholdings

Health Savings Accounts (HSA) are also a great tax benefit for individuals. Taxpayers can deduct up to $3,450 (or $6,900 for family plans) annually for contributions made to qualifying HSA accounts. Additionally, taxpayers never pay tax on income or gains inside the account, as long as the funds are used for qualified healthcare expenses.

Because the TCJA made significant changes to the manner in which individual income taxes are calculated, the IRS advised taxpayers to consider their income tax withholdings on their salaries and wages to ensure that the amounts being withheld in 2018 were sufficient to meet their income tax liabilities under the new law. Hopefully, most taxpayers have already made these adjustments, but a final review prior to year-end is still a good idea. This allows taxpayers an opportunity to adjust withholdings if necessary to avoid penalties. A “withholding calculator” is available on the IRS website.
 

Itemized deductions

There were significant changes in the TCJA that impacted planning for itemized deductions. The standard deduction for married taxpayers increased to $24,000, and the maximum deduction for state and local income and property taxes was capped at $10,000. Accordingly, many individual taxpayers may lose the benefit of itemizing their deductions without proper planning.

Taxpayers may wish to consider bundling their tax payments or charitable donations in certain tax years to exceed the new standard deduction limit in order to itemize their deductions in certain years, while utilizing the standard deduction in others. Also, interest on home equity loans is no longer deductible in 2018. However, if the loan was taken to buy, build or improve the home, the interest is still deductible. Lastly, miscellaneous itemized deductions, such as investment advisor fees, are no longer deductible. Taxpayers should consider the impact of these lost itemized deductions in planning for their 2018 tax positions.

It is important for taxpayers to be organized with their information and plan ahead to realize maximum tax savings.  Grossman Yanak & Ford LLP works with clients to provide year-end tax planning strategies and keep them current on tax law changes and developments. Please contact Shawn Firster at 412/338-9300 or firster@gyf.com to discuss your specific tax situation.

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