There are many events that occur during the year including the new 2017 TCJA federal tax law changes that can significantly affect each taxpayer’s situation. Planning for and understanding those changes are important in knowing the implications as another tax filing season approaches. Here are some key items to consider…..
Retirement planning ideas:
- Take full advantage of employee retirement plan, at least to the point of any employer match, which amounts to additional tax-deferred income from employment. And if you’re 50 or older, make a catch-up contribution (see chart below).
- Traditional IRA, Individual 401(k) or other qualified retirement plans, contributions are tax deductible and pre-tax with earnings growing tax-deferred. Roth IRA, contributions are after-tax but qualified distributions are tax-free.
- Be sure to make annual IRA contribution. You have until April 15 (tax deadline) of current year to make the previous year’s contribution. If eligible, a Roth IRA is a good option especially if one is not eligible for a deductible Traditional IRA contribution.
- Remember the required minimum distributions (RMDs) if turning 70 ½ years old in 2019. You have to take a required minimum distribution from your retirement account(s) before December 31, 2019. RMD takes effect when you turn 70 ½, defined by the IRS as six months from the day you turn 70 and begin during that calendar year even if you hit the 70 ½ mark on December 31 of the current year. Penalty is a hefty 50% tax on required distribution not taken.
2018 Federal Limits for Retirement Plans:
Plan Limit Catch-up prov 50 +
- 401(k)/403(b)/457 $18,500 $6,000
- Simple IRA $12,500 $3,000
- Traditional/Roth IRA $5,500 $1,000
- Profit sharing/SEP 25%/$55,000 N/A
Cost Basis Reporting:
Financial institutions are required to report gain and loss details to taxpayers and the IRS for certain investments sold. These include:
- Equities acquired on or after January 1, 2011
- Mutual funds, ETF’s & dividend reinvestment plans acquired on or after January 1, 2012
- Other securities including most fixed income & options acquired on or after 1-1-14
It is recommended to save purchase and sale documentation, including records of any automatic reinvestments to make sure it matches the information reported to the IRS.
Capital Gain Tax Rates:
In 2018 the capital gains tax rates are either 0%, 15% or 20% for most assets held for more than a year. Capital gains tax rates on most assets held for less than a year correspond to ordinary income tax brackets (10%, 12%, 22%, 24%, 32%, 35% or 37%).
Capital gains are the profits from the sale of an asset — shares of stock, a piece of land, a business — and generally are considered taxable income. A lot depends on how long you held the asset before selling.
- Short-term capital gains tax is a tax on profits from the sale of an asset held for one year or less. Short-term capital gains tax rates equal your ordinary income tax rate.
- Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year. Long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.
Standard Mileage Rates for 2018:
- Business Use (per mile) 54.5 cents
- Charitable Use (per mile) 14.0 cents
- Medical (per mile) 18.0 cents
Annual Gift Tax Exclusion for 2018:
The annual gift tax exclusion has been increased from $14,000 to $15,000 in 2018. A taxpayer can give away up to $15,000 each to any number of people. A husband and wife can each make $15,000 (or $30,000 for spouses splitting gifts) without these gifts being taxed. A taxpayer can also give unlimited amounts toward tuition or medical expenses when paid directly to the institution or provider.
- Double-check you withholding. You want to pay the IRS its due but not a penny more. So make sure you’re not having too much (or too little) taken out each paycheck. The same holds if you make quarterly estimated tax payments.
- Consolidate debt. Consider consolidating credit card debts and transfer the balance to a lender that offers a lower rate. Or pay off credit card balance with highest rate first, if consolidation is not an option.
- Save and invest. The stock market has provided the highest returns in recent years. Blue chip stocks for long-term growth and dividend income reinvested have provided many investors good yields in the long run. With low cost fees, many have done it themselves or work with a financial adviser.
- Live within your means. Be aware of spending habits. Practice the habit of saving more and spending less. Know the difference between Wants vs Needs. People have unlimited wants but can we afford them or do we really need them? The habit of savings does take mindfulness and discipline – definitely a Mind over Matter scenario.
It’s important to periodically check in on your unique tax situation and take the time to review your plans to ensure your strategies are aligned with your goals.
I’m a CPA who assists individuals, entrepreneurs, and small businesses navigate the complex world of tax compliance along with other business issues through planning strategies or ideas. It’s essential that entrepreneurs stay focused on their own key craft and achieve a more balanced approach to any pursuits.
Besides helping clients, I’m a blogger who enjoys writing useful and relevant contents (see my other blogs). You can also Connect with me here to schedule a free 30 minute consultation about your tax situation. #PlanWell #LiveWell #SanDiegoCPA #JustGetBalanced!