The end of another year is fast approaching, meaning it’s time to take action to reduce taxes on your personal tax return. Consider these tax-savvy strategies:
Bunch your deductions
In light of the recent standard deduction increase, bunching deductions on your personal income tax return may be especially helpful for 2018 if you’d like to itemize.
Bunching means concentrating multiple years of itemized deductions into the year offering the greatest tax benefit. You then claim the standard deduction in alternate years. Bunching is most effective when combined with other tax planning, such as reducing your adjusted gross income (AGI).
For instance, charitable contributions can often be effectively bunched. In general, as long as you have written acknowledgment from a qualified charity, you can deduct donations in the year you write the check or put the charge on your credit card.
Keep in mind that donating appreciated assets before Dec. 31 may be more tax advantageous than cash contributions. When you contribute property you have owned for more than a year, you can usually deduct the full fair market value.
Other itemized deductions you can control in order to maximize tax savings include medical expenses, as well as real estate interest payments and state income taxes.
Monitor your AGI
Another tax-planning strategy is to reduce your AGI. One way to do this on your personal tax return is to maximize above-the-line deductions. These are expenses you can claim even if you don’t itemize.
Review above-the-line tax ideas to lower your taxable income. They include retirement plan contributions and withdrawals, student loan interest deductions, teacher classroom expenses and health savings account contributions.
Consider shifting income
Since individuals are taxed on a cash basis, any income you can shift into next year or deductible payments you can make this calendar year can help reduce your taxable income. So delaying receipt of bonuses, or prepaying some eligible deductions before the end of the year are workable ways to help manage your taxable income.
You can also reduce some of your tax by shifting income among family members. You could consider making gifts of income-producing property to family members in lower tax brackets. Up to $2,100 of unearned income is usually taxed at a rate lower than yours. Though you can’t take a tax deduction for gifts, up to $15,000 can be given to a person each year ($30,000 when you’re married) and avoid any gift tax complications.
To discuss the tax-cutting options best for your individual circumstances, call to schedule a year-end tax review.
NOTE: Minnesota and many other states have not adopted the federal tax law changes and will continue under the old law.
YEAR-END 2018
This newsletter is issued annually to provide you with information about minimizing your taxes. Do not apply this general information to your specific situation without additional details. Be aware that the tax laws contain varying effective dates and numerous limitations and exceptions that cannot be summarized easily. For details and guidance in applying the tax rules to your individual circumstances, please contact us at (888) 388-1040.
