Essential Money Moves to Make Before the Year’s End

by Stephen Reed | Construction, Healthcare, News, Retirement, Tax, Tax Planning - Individual, Tax Preparation - Individual

The end of 2018 is quickly approaching, but there are a few key money moves you should make before the new year, especially in light of the Tax Cuts and Jobs Act. The higher standard deduction means more Americans will ditch itemizing their 2018 federal tax returns.

That means you should probably focus on year-end tax strategies that first lower taxable income, rather than maximize tax deductions. Here are a few key items to tackle before the ball drops on the new year.

Take Stock of Losses

If you follow the stock market, you know that the last few months have been volatile, so there’s a good chance that some of your investments have become losses. That might sound bad, but any losses that are in a taxable account, such as an investment account, bank account, or money market mutual fund, can be sold to offset other taxable investment gains in the same year. Furthermore, if your losses exceed your gains, you can apply up to $3,000 to offset ordinary taxable income from this year.

Max Out Retirement Savings

As close as possible, that is. The more money you put into your 401(k), the more financial security you’ll have in the long run, but a lot of these contributions also reduce your taxable income. At this point you probably only have one or two more paychecks from which to have funds withheld, but even a few hundred dollars more can provide some near-term tax relief as well as bolster your retirement savings.

Fund Your HSA

You have until the 2018 tax-filing deadline to fully fund your health saving account (HSA) in order to get a bigger deduction. The maximum limits are:

• Individuals: $3,450
• Families: $6,900
• 55 or older: an additional $1,000 catch-up contribution

These accounts can roll over indefinitely, so they’re a smart way to save for future medical expenses. HSAs also have a triple tax benefit: contributions are tax-deductible (even if you don’t itemize), earned interest is tax-free, and withdrawals are tax-free as long as they’re used to pay for qualified medical expenses.

Use Up Your FSA

The funds in a flexible spending account typically don’t roll over to the next calendar year. However, some employers allow $500 to carry over into the new year or grant employees until March to spend FSA funds. Even so, now is a good time to use the pretax dollars for doctor appointments, flu shots, and even some “everyday” drugstore items, such as non-prescription reading glasses, contact lenses and solutions, and reading glasses.

Maximize Deductions

If you’re wondering whether you should itemize your 2018 tax returns or take the standard deduction, here are a few last things to keep in mind:

• Medical treatment: If you spend more than 7.5 percent of your adjusted gross income this year on medical expenses, you can deduct those costs.
• Property taxes: If you paid less than the $10,000 limit for state and local taxes, your state may allow you to prepay 2019 property taxes. This way you’ll get the most from the state and local taxes deduction.
• Mortgage Interest: Provided you’re not near the cap on the mortgage interest deduction, which is $750,000 after the new tax law, you can make your January mortgage payment in December to boost the amount of interest you paid during the 2018 tax year.
• Charitable donations: If you routinely give to charities, double up on contributions and make your 2019 donation before year’s end. If you put the double donation into a donor advised fund, which is like a charitable investment account, you’re eligible to take an immediate tax deduction. That means you can take the deduction for 2018 while your funds are invested for tax-free growth, allowing you to make distributions to charity next year or beyond.