By Robyn A. Friedman
City & Shore Magazine
It’s December — a time when you’re no doubt preoccupied with family, friends, shopping and celebrations. But there’s something else you should be thinking about now, before you zone out for the season: taxes.
Experts say it’s not too late to take a look at your tax situation for 2018 — or too early to start planning for 2019. The bottom line: You still have time to make tweaks to your financial situation that could reduce your overall tax bill.
“Even though the year is almost over, it’s not too late to make some last-minute financial changes to save yourself a significant amount of money on your taxes,” says Jeremy Straub, chief executive officer of Coastal Wealth in Fort Lauderdale, a member of MassMutual Financial Group.
One strategy Straub recommends: Maxing out your IRA contribution. “Not only do you save money on your taxes this year, you also defer taxes until distribution,” he says.
According to the Internal Revenue Service, for 2018, your total contributions to all of your traditional and Roth IRAs cannot be more than $5,500 ($6,500 if you’re age 50 or older) or your taxable compensation for the year, if your compensation was less than this dollar limit.
Other strategies you can take advantage of now to save money on 2018 taxes:
- Make a charitable contribution before the end of the year, whether in cash or by donating clothes, furniture or other household goods you no longer need. You’ll not only support a worthy cause, you’ll also gain a tax deduction for the donation.
- Consider making your January 2019 mortgage payment in December. In the past, this was a common strategy to eke out a bit more interest to deduct. But that only works if you itemize, and due to the new tax changes that kicked in this year, fewer people will be itemizing due to the doubling of the standard deduction. It’s still worth a conversation with a tax advisor, however, and if you plan to itemize this year, prepaying your January mortgage payment may lower your tax bill.
- Review your investments, and sell off those with losses to offset any capital gains you’ve recognized this year.
- Expense business property. You can elect a Section 179 deduction to write off the cost of qualified business property purchased in 2018. The maximum deduction for 2018 is $1 million.
One final tip: If you’re an employee, check your withholding. The new tax laws not only doubled the standard deduction but also limited some popular tax breaks such as the deduction for state and local taxes. The IRS has a free Withholding Calculator, at irs.gov/individuals/irs-withholding-calculator, that lets you do a quick “paycheck checkup” to make sure you are having the correct amount withheld. Withhold too little, and you may have to cough up money for taxes or penalties; withhold too much, and you’ll get a refund but your paycheck will be lower. You still have time to give your employer a new W-4 form to make adjustments in your paycheck through the end of the year, if necessary.
As always, be sure to consult your tax advisor to discuss these strategies and others that may be right for you.