The new tax law brings questions into play regarding how some taxpayers can save money. Here are a few options for both planners and procrastinators.
Flexible Savings Accounts
I love these tax vehicles because taxpayers don’t pay taxes on money in a FSA ( Flexible Savings Account). However, the one caveat of these is that all the money must be spent on qualified medical expenses by the end of the year.
What are some good ways of spending this money? Look for unreimbursed medical expenses, such as eyeglasses, medications, medical equipment, and even copays! If money is still left over, remember that you can always refill prescriptions and go see a doctor that you have been holding off on.
Accelerating or Delaying Payments
The standard deduction has been doubled for both single and married couples filing jointly to $12,000 and $24,000 respectively. This has been great for those who have always taken tax planning as a long term game. Taxpayers now have an opportunity to hold off on their itemized deductions to every other year by holding off on things like charitable deductions or accelerating it to the current year.
Tax Benefit Phase-out
So the more money you make, the more taxes you typically will pay due to our progressive tax system. How do you prevent the phase out of tax benefits? Look at your income and then your AGI (Adjusted Gross Income) to see if there are opportunities to lower it with an additional contribution to a tax retirement plan via a 401(k), 403(b), or even a deductible IRA.
For those who are 70 ½
Those with retirement accounts at 70 ½, must take required minimum distributions. A good way to lower taxable incomes is to consider a trustee-to-trustee transfer of some or all to a qualified charity. This is a great opportunity for those who no longer have mortgages, come up short on deductions, or those who don’t have enough out-of-pocket medical expenses.
If an individual is expecting a large net capital gain, they may want to sell stock to generate a loss for the year. However, please discuss this strategy with your investment representative as this strategy could be contradictory to future financial needs.
Everyone loves mutual funds, however not everyone understands when those declare and pays dividends. End-of-the-year dividend payments could translate into being blindsided every year. This is true even if you reinvest the dividend into new shares.
2018 will be a crucial year for most taxpayers as everyone is expecting to experience a learning curve. Remember to use this year’s opportunity to gauge how you want to approach your tax planning with your W-4s contributions next year.