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December 20, 2018

2018 Year-End Tax Planning Strategies

The Tax Cuts and Jobs Act that was enacted last December topples conventional tax planning strategies and changes the familiarity for this year’s tax filing season. Below is a brief review of some of the most important 2018 year-end tax planning ideas for individuals:

Make charitable contributions.

Strategies such as bunching your charitable contributions into one year, or setting up a donor advised fund with a large contribution can enable taxpayers to itemize their deductions in one year and take the standard deduction in the next.

Gift appreciated stock to charity.

Although the market may not be performing at its best over the last few weeks, a donation of appreciated stock has a double benefit.  The charitable deduction is at the full market value of the stock, not the stock basis, and there may be opportunities to rebalance your investment portfolio.

Donate your retirement distribution.

Taxpayers who are age 70 ½ or older, and who still may need to withdraw their Required Minimum Distribution (RMD) for the year, may consider a Qualified Charitable Distribution (QCD).  Up to $100,000 may be directed from the retirement plan directly to a charity. The distribution counts towards the RMD and will not be taxable to the individual. This is a very efficient way to be charitable and still utilize the higher standard deduction benefit.

Evaluate retirement contributions.

Before that last paycheck of the year, it is a good time to evaluate if you can add a little more to your employer retirement plan. Have you maximized your company’s match?  If over the age of 50, did you make the additional available contribution?

Make educational contributions.

If your state allows a deduction to a 529 plan, generally a contribution must be made before the end of 2018 to get the deduction for the year.  And remember, 529 plans can now be used for certain qualified expenses for elementary and secondary schooling.

Consider gifting strategies.

The end of the year is a great time to make annual exclusion gifts.  For 2018, the annual exclusion amount is $15,000 and can be gifted to an unlimited amount of beneficiaries per year without decreasing the lifetime estate tax exclusion amount or paying a gift tax.

Perform an overall financial health check.

Although we are all busy with holiday events, the end of the year is a fitting time to ensure your finances are in good shape and are aligned with your life and financial goals. Do you have an adequate emergency fund? What are your outstanding debt rates and terms?  Should you have a goal to pay those down in 2019?  When was the last time you had an insurance policy review?  Are your beneficiaries still applicable?  Do you need to create or update your will, healthcare power of attorney or other legal documents?

Even though we only have a few days left in 2018, there is still a small window of time for a quick review of your tax and financial situation. If you have any questions about any of these planning ideas, contact an Anders advisor and we would be happy to discuss with you.

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