14 year-end tax tips

The earlier the better when it comes to adopting a strategy to reduce your taxes. But even if time gets away from you, there are some year-end actions you can take to cut your taxes.

Here are some last-minute tax cutters you might consider:

1. Review income and deductions. It’s all in the timing. The most fundamental year-end tax moveis to adjust the timing of income and deductions. If your income is high, deferring receipt of more income at the end of the year can save taxes. If you’re close to the line on itemizing deductions, accelerating payment of deductible expenses might save taxes.The first step in timing is to know where you stand now. Then try to forecast where you’ll be next year at this time. If you think your next year’s tax rates will be higher than the current year’s, you might save money by switching tactics and accelerating income.

2. Postpone income. If you’re due a bonus, see if your employer will hold off writing the check until January. If you own a cash-basis business, you can time receipt of income by waiting until close to the end of the year to send your December billings.You can’t defer taxes by simply not putting a check in the bank. If you have an unrestricted right to the money, it’s income in the year it’s available -whether or not you choose to receive the funds.

3. Bunch your payments. Some taxpayers find they have almost enough deductions to exceed the standard deduction. If this is your situation, try bunching payments into one year to take advantage of itemizing. The next year use the standard deduction, and then bunch your payments again the following year. This way you’ll itemize every other year.
Other limits to watch are the medical expense limit and the miscellaneous itemized deduction limit. By bunching payments into one year or changing the timing of certain services, you may be able to get a deduction.

4. Pay deductible expenses before December 31. Paying your state income tax estimate before December 31 accelerates your federal deduction. You can also pay property taxes early, make an extra mortgage payment (the interest portion is deductible), pay your tax preparer for your year-end planning meetings, or opt to have dental work or elective surgery before the end of the year. Keep in mind that the IRS doesn’t allow a deduction for payments made before the services are performed.

5. Be charitable. You can make cash contributions or charge them on your credit card and take a current deduction. If you give appreciated property to charity, you’ll get to deduct the full market value. You may need an appraisal to determine the value of some property.

6. Contribute to a deductible IRA if you qualify. You have until the April tax filing deadline to open an IRA and make a deductible contribution for the prior year.

7. Contribute to your company’s 401(k). If you have a 401(k) plan at work, make as large a contribution as you’re allowed to make.

8. Set up self-employed retirement plan before December 31. If you’re self-employed and you want to make a contribution to a Keogh or similar plan, the plan must be adopted before year-end, even though you have until the April tax filing deadline (or later if you get a filing extension) to make a deductible contribution for the previous year.

9. If necessary, adjust your income tax withholding before year-end to avoid underpayment penalties. Withheld taxes are considered paid in equal amounts during the year regardless of when the tax is withheld. Therefore, a year-end adjustment to your withholding could help you avoid a penalty.

10. Consider your marital status. If planning a wedding or divorce, be aware that your marital status as of December 31 determines your tax status for the whole year. Changing the dates of a year-end event may save taxes.

11. Offset capital gains. Review your investment portfolio to determine whether you should sell some losers before year-end in order to offset capital gains you’ve already realized. Capital losses are first netted with capital gains and then are deductible against ordinary income (limited to $3,000 a year).

12. Check exposure to the AMT. If you have tax preference items, do an alternative minimum tax (AMT) computation when you do your regular tax estimate. If the AMT will apply to you, you may still be able to shift income or deductions to avoid or reduce the tax.

13. Plan for losses. Check your basis in any S corporation in which you are a shareholder and where you expect a loss this year. Be sure you have sufficient basis to enable you to take the loss on your tax return.

14. Look before you leap. A word of caution about year-end tax-cutting maneuvers: don’t rush into transactions which you hope will reduce your tax bill only to find out you’ve created other problems. Do not enter into transactions solely for the tax benefits. All investments should be economically sound. There are those who will sell you so-called “tax” solutions. Analyze such options carefully. Know more...

How to Have a Comfortable Retirement

If you’re age 35 or more and haven’t made a serious effort to plan for retirement, your dreams of a comfortable and active retirement could turn into the nightmare of being old and poor.

Scare tactics, you say? Consider this: most experts say you need at least 66% of pre-retirement income to live comfortably when you retire. But an active retiree may need 70-80% of pre-retirement income to pay for added travel and health care costs.

Will your company pension and social security replace 60-80% of your salary?

Social security: The portion of your earnings that can be replaced by social security falls dramatically as you climb the income scale. Even if you qualify for the maximum social security benefit, you will probably require additional retirement income from other sources.

Your pension plan: Will your company pension make up the difference? That depends on the plan, your length of service, and your earnings. Many companies are trying to scale back their retirement plans. And if you’ve changed jobs often, you will have decreased the length of service credited to your pension.

What about inflation? The impact of inflation will also be a factor in whether you can retire comfortably. If inflation outpaces the cost-of-living increases for social security and your company pension, your plans to live comfortably from these sources may need to be changed dramatically. And if you have a short-fall in your retirement income to begin with, the effects of inflation will be magnified. Assuming inflation at a modest 4% annually, prices will double every 20 years.

How much is enough? If the prospect of living your remaining years on a steadily declining income doesn’t fit your plans, take stock of your situation now. Then take action to establish a program that will lead to a comfortable retirement.

First, do an estimate of how much income you will have at retirement and an estimate of how much you will need for the kind of retirement you have in mind. For a quick estimate of whether or not you’ll have enough income for retirement, calculate the following:

How to come up with more

If you won’t have enough, the next step is to see how you can come up with the extra income. Your choices will probably be limited to some combination of the following:

• Save more (reduce current spending).
• Increase the return on the savings you already have.
• Postpone retirement.
• Plan to supplement your retirement income with part-time work.
• Accept a lower standard of living when you retire.

The younger you are, the more of your retirement income you can fund through a savings plan. If you’re age 30 and start saving 10% of your yearly income today, you’ll probably reach retirement with a comfortable nest egg. If you don’t get started until age 40, you may need to save 20% of your income.

Maximize your earnings

When deciding on a savings plan, you will want to maximize your earnings. Look first at tax-deferred savings, particularly if your employer offers a 401(k) plan. If you don’t have a 401(k)
available, you can still get tax-deferred earnings through an IRA, long-term growth stocks, insurance annuities, real estate investments, and Series EE bonds.

To earn more on your savings, consider investing in equity investments (stocks and real estate) rather than fixed-income investments (CDs, bonds, savings accounts). If you’re ten years or more from retirement, you may want to put more of your money in equities. As you near retirement, it may be appropriate to switch more of your funds to fixed-income investments.

Start planning now

Regardless of where you decide to invest, the single most important step to a comfortable retirement is to start planning and saving today. Our team is available to help you begin planning now so that you will have a lot to look forward to. Learn more by scheduling a free consultation today: https://www.bas-pc.com/appointment-center/

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Are you Eligible for the Earned Income Tax Credit (EITC)?

Since 1975, the Earned Income Tax Credit (EITC) has provided a tax break to millions of Americans each year. The credit was originally established to give low and medium income taxpayers a break on their Social Security taxes while providing an incentive to work. The EITC is often the subject of missed opportunity as the IRS estimates as many as 20% of taxpayers that qualify for the credit do not include it on their tax return. Here are some things to consider:

Q. Do I have to have children to qualify? Do I have to be married?

A. No. One of the most common errors is thinking the EITC is only for married couples with children. Both single and married taxpayers can qualify for the EITC. Even taxpayers without children may qualify for the credit if they meet certain age and residency requirements. You may NOT, however, file your tax return as “married filing separate” and still receive the credit.

Q. How much can I earn and still qualify for the EITC?

A. If you earned $54,884 or less in 2018 you could qualify ($49,194 if you are unmarried).

Q. If I did not earn income can I still get the credit?

A. No, you must have “earned” income to qualify for the credit. You have earned income if you worked for someone else (wages), are self-employed, or have income from farming. Nontaxable combat pay for military members qualifies as does some cases of disability income.

Q. How much is the credit?

A. The maximum credit could be worth $6,431 to you in 2018 ($6,557 in 2019). The amount of the credit depends on your filing status (married filing jointly, single, widow, or head of household), your income, and how many qualifying children you have.

Q. What else should I know?

A. A valid social security number is required for you, your spouse, and any qualifying children to receive the credit. It is also important to save information to support your claim for the credit. If the IRS thinks you recklessly disregarded the rules and claimed the credit in error, they could prohibit you from receiving the credit for two more years. If the filing was deemed fraudulent, you could be barred from using the credit for 10 years!

Remember to check for your EITC every year. Just because you did not qualify in the past does not mean you can’t qualify for the credit in the future. If you have questions or need assistance evaluating your qualification, our team is here to help. Schedule a meeting today: https://www.bas-pc.com/appointment-center/

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