Mark your calendar to review these essential items each year to ensure you are not missing something that could cause trouble when you file your tax return:
- Required minimum distributions (RMDs) – If you are 70 1/2 or older, you may need to take RMDs from your retirement accounts, or face hefty fines. RMDs need to be completed by Dec. 31 every year after you turn the required age. For the year you turn 70 1/2, you can wait until April 1 of the following year to make the distribution, but you will need to do another one before Dec. 31 of the same year. This means two distributions on one tax return.
2. Your IRS PIN – If you were a victim of prior IRS identity theft you will be mailed a one-time use personal identification number (PIN) sometime in December. Make sure to save the PIN, as it is required to file your Form 1040. If you’d like, you can sign up for the PIN program. Note that once you are enrolled in the program, there is no opt out. A PIN will be required for all future filings with the IRS.
3. Retirement contributions – You may wish to make some last-minute contributions to qualified retirement accounts like an IRA. This can be $5,500 for traditional or Roth IRAs, plus an additional $1,000 if you are 50 or older. Contributions to traditional IRAs need to happen by April 15, 2019 to be deducted on your 2018 tax return. If you are looking to max out your 401(k) available through your employer, the 2018 limit is $18,500 (plus $6,000 for 50 or older) and needs to be withheld from your paycheck by Dec. 31.
4. Harvest gains and losses – Profits and losses on investments have their own tax rates from 0 percent to as high as 37 percent. Knowing this, make plans to conduct an annual tax review of your investments. This includes:
- Making full use of the annual $3,000 loss limit on investment sales.
- Understanding investments held longer than one year have lower tax rates as long-term capital gains.
- Trying to net ordinary income tax investment sales with long-term investment losses.
- Timing matters with investment sales and income taxes, so keeping a watchful eye on your investments and having a year-end strategy can save you some taxes.
5. Last-minute tax moves – While last-minute tax moves may be limited, here are a few ideas worth considering:
- Make last-minute donations to your favorite charities to maximize your itemized deductions.
- Consider contributions of up to $100,000 from retirement accounts to qualified charities if you are over the age of 70 1/2.
- Look to make tax-efficient withdrawals from your retirement accounts if you are over the age of 59 1/2.
- Delay receipt of income or accelerate expenses if you are a small business.
- Take advantage of the annual $15,000 gift-giving limit.
Understanding your current situation and having a plan will make for a smooth tax-filing process and maximize your tax savings.
© MC 2018