With the end of the year fast approaching, it's time to take steps to cut your 2018 tax bill before it's too late. Four foolproof year-end strategies should be considered here, taking into account the changes contained in the Tax Reduction and Employment Act (TCJA).
. 1 Play the Increased Standard Deductions
The TCJA has almost doubled the standard deductions. The default deductions for 2018 are:
* $ 12,000 if you are single or married, if you have a separate status (starting at $ 6,350 for 2017).
* $ 24,000 if you're married (starting at $ 12,700) [$1945912] * $ 18,000 if you're a householder (from $ 9,350).
If your total tax deductible for 201
* The most deductible prepayment charges are included in the house payment due on January 1st. Accelerating this payment this year will yield an interest of 13 months in 2018. Although the TCJA redefines the individual deductions for home mortgage rates, you're probably not affected.
* Next on the prepaid menu are state and local income and property taxes due early next year. The prepayment of these pre-year invoices may reduce the federal income tax bill for 2018, as the sum of the deductions deducted is much higher. However, the TCJA has reduced the maximum amount you can deduct for state and local taxes to $ 10,000 or $ 5,000 if you use the disconnected status of the marriage. So beware of this new limitation.
* Consider making larger donations to charity this year and smaller ones next year to make up for it. This could cause your individual prints to exceed your standard deduction this year. Next year, you can claim the standard deduction.
* Finally, consider accelerating elective medical procedures, dental work, and visualization expenses. For 2018, you may deduct medical expenses if they exceed 7.5% of your adjusted gross income (AGI), provided you complete a single entry.
Warning: The state and local tax prepayment can be a bad idea if you owe the dreaded alternative minimum tax (AMT) this year. This is because depreciation on state and local income and wealth taxes is completely prohibited under the AMT rules. Therefore, prepaying these expenses in AMT mode can bring little or no tax benefits.
. 2 Carefully manage investment gains and losses in taxable accounts
When investing in taxable brokerage accounts, you should consider the tax benefit of selling valued securities held for over 12 months. The maximum income tax rate on long-term capital gains recognized in 2018 is only 15% for most people, although it can reach a maximum of 20% on higher incomes. The 3.8% net capital gains tax (NIIT) can also be applied to higher incomes.
If you have had capital losses earlier this year or capital loss carry-forwards 2018 years ago, selling winners this year will not result in a tax break. Above all, securing net short-term capital gains with capital losses is a good thing because short-term net profits would otherwise be taxed at higher ordinary income of up to 37%.
What if you have loser investments that you would like to delete? Biting the bullet and taking the resulting capital losses this year would protect capital gains, including highly taxed short-term profits, from other sales this year.
If selling a number of losers would cause your capital losses to exceed your capital gains, the result would be a net capital loss for the year. No problem. This net capital loss can be used to protect up to $ 3,000 in income from salaries, bonuses, self-employment, interest, royalty and whatever ($ 1,500 if you use a separate marriage status) from 2018 , Any excess capital loss this year will be carried forward to next year and beyond.
In fact, a capital loss could turn out to be a pretty good deal. The carryover can be used for short-term gains as well as long-term gains that will be recognized in the next year and beyond. This can give you additional investment flexibility over these years, as you do not have to hold up-front securities for more than a year to get a preferred tax rate. And since the two highest federal rates for short-term net capital gains in 2019 and beyond are 35% and 37% (plus the 3.8% NIIT, if applicable), a capital loss carryforward to capitalize on highly taxed short-term gains could be capitalized in the coming years that would be a very good thing.
. 3 Establish Members for Tax Rate of 0% on Investment Income
According to the TCJA, the federal income tax rate on long-term capital gains and qualified dividends on securities held on taxable brokerage accounts is still 0% if profits and dividends are at 0% for LTCGs and dividends.
While your income may be too high to benefit from the 0% rate, you may have children, grandchildren, or other relatives who are in the 0% range. If so, consider giving them shares or investment units that they can then sell and pay 0% tax on the resulting long-term gains. Gains are long term as long as the ownership period plus the ownership of the giver (before the recipient sells) is at least one year and one day.
Surrendering shares is another tax smart idea. As long as dividends fall into the 0% rate of the recipient, they are exempt from federal tax.
For details on who can qualify for the 0% rate, even though he has a respectable income, see here
Warning: If you give securities to anyone under the age of 24, the dreaded kiddie could Tax Rules May Result The resulting capital gains and dividends are taxed at the higher tax rates that apply to trusts and discounts. That would defeat the purpose. For more information on how the Kiddie Tax works, click here.
. 4 If you are inclined charitable: sell lost shares and cash the resulting cash; Profit Sharing Ransom
If you wish to give gifts to your loved ones and / or charities, these may be in connection with a general redesign of your portfolio of taxable stocks and equity funds. Gifts should be made according to the following tax smart principles.
Gifts to Relatives Do not give away losing stocks (currently worth less than you paid for them). Instead, you should sell the shares and record the resulting tax-saving capital loss. Then you can give the cash sale proceeds to your relative.
On the other hand, you should give the winner shares to relatives. Most likely you will pay lower tax rates than you would pay if you were to sell the same shares. As explained earlier, 0% income tax credit for LTCGs and qualifying dividends pay a 0% tax rate on profits from shares held for over one year prior to the sale. (To meet the Multi-Year Rule for Beneficial Shares, you can count your ownership length plus the term of the gift recipient.) Even if the winner's stock was held for a year or less before the sale, your relative will likely have a much lower tax rate on the profit pay as you would.
Gifts to charities. Tax-privileged gifts to relatives also apply to donations to charities approved by the IRS.
They should sell loser shares and collect the resulting tax-saving capital losses. Then you can pass the cash proceeds to preferred charities and claim the resulting tax-deductible charitable deductions (assuming you introduce a line item). This strategy offers a double tax benefit: tax-saving capital losses plus tax-saving donation for charitable donations.
On the other hand, you should donate the profits instead of giving away cash. Why? For donations of publicly traded shares that you own over the course of a year will result in charitable deductions equal to the full current market value of the shares at the time of the donation (assuming you perform a single entry). And if you donate winning stocks, you will miss the capital gains taxes on those shares. So, this idea is another double tax savings: you avoid capital gains taxes and you get a tax-saving donation deduction (assuming you set up). Meanwhile, the tax-exempt charity can sell the donated shares without owe anything to the IRS.