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Year-end 2018 sees the end of the first year of the Tax Cuts and Jobs Act (TCJA), the most significant tax legislation in the Unites States in more than 30 years. While one of the claimed benefits of tax reform was the simplification of filing and the lowering of income tax rates, there are still many steps that individuals can take that can lower their tax bills. Planning, in preparation for this tax season, involves much more –both in terms of traditional year-end strategies and strategies developed in response to developments that have taken place since last year. Here are some points to consider:
Data gathering. Year-end planning should start with data collection and a review of prior year returns. This includes information on losses or other carryovers, estimated tax installments, and items that were unusual.
Income tax rates. The most direct control taxpayers have over their tax bracket rests in their ability to control the timing of income and deductible expenses. For example, taxpayers who expect to be in a lower tax bracket in 2019 should consider deferring income to 2019 and accelerating deductions into 2018.
Investments. Taxpayers holding investments, whether in the form of securities, real estate, collectibles, or other assets, often have an opportunity to reduce their overall tax bill by some strategic buying and selling toward the end of the year, as well as, exchanging appreciated assets for like-kind property in order to defer gains.
Income caps on benefits. Monitoring adjusted gross income (AGI) at year-end can also pay dividends in qualifying for a number of tax benefits. Often tax savings can be realized by lowering income in one year at the expense of realizing a bit more in another year.
Life events. The biggest variables for many taxpayers impacting their year-end tax planning surrounds life events such as marriage, divorce, birth or adoption of a child, a new job or the loss of a job, and retirement. These life events may, for instance, result in a change in filing status that will affect tax liability.
2018 tax law changes. Nearly all of the provisions of TCJA came into effect during 2018. There are many new tax laws relating to alimony, medical expenses, state and local taxes, standard deduction, and timing that individuals should be aware of. Your tax professional can help you navigate those.
As your start gathering your tax data, be sure to write down any questions about how year-end tax planning might help you save taxes. Share those with your tax professional. Our tax laws operate largely within the confines of “the tax year.” Once 2018 is over, tax savings that are specific to this year may be gone forever.