7 Year-End Tips for 2018 Taxes

by Mitchell J. Smilowitz, CPA

With the end of the year just more than two months away, this is a good time to review your taxes. These 7 tips will get you started.

Maximize your retirement plan contributions

Many experts recommend maximizing contributions to your retirement plan as the #1 way to reduce the taxes you owe. Not only do you reduce your taxable income by the amount you save (up to the federal limits), but the money grows tax-free in your retirement account. You only pay taxes as you withdraw money in retirement when you are likely to be in a lower tax bracket. Reduce your 2018 taxes – and invest in your long-term financial well-being at the same time.

Check if you are withholding the correct amount

The Tax Cuts and Jobs Act (TCJA), enacted in December 2017, made major changes in the tax code. As a result of these changes, the U.S. Government Accountability Office (GAO) reported that 21% of taxpayers may be withholding too little. This could result in a large payment come tax time. If you are withholding too much, you are giving an interest-free loan to Uncle Sam. To see how much you should be withholding, use the IRS Tax Calculator. To change your withholding, update your Form W-4 and submit it to your employer.

Check your itemized deductions

The TCJA nearly doubled the standard deduction. The increased standard deduction may dramatically alter the value of itemized deductions you used in previous years. To take advantage of itemized deductions, they must exceed: $12,000 for a single taxpayer or a married taxpayer filing separately; $24,000 for a married taxpayer filing jointly; or, $18,000 for a head of household. The personal exemption has been eliminated.

Itemized deductions include state and local taxes (limited to $10,000 by the TCJA), mortgage interest, charitable contributions and health care expenses greater than 7.5% of adjusted gross income. The limits on the mortgage interest deduction are different for loans made since passage of the TCJA and those made earlier, so check on the size of the deduction for which you are eligible. The TCJA limits the deduction of interest on home equity loans to funds used for home improvements. Finally, the TCJA eliminates miscellaneous deductions that exceed 2% of your adjusted gross income. This includes unreimbursed employee expenses, tax preparation fees and the home office deduction.

For retired clergy: Maximize your housing allowance

Retired clergy can potentially claim up to 100% of the distribution from their JRB account as a housing allowance. If you are retired and have not yet taken a distribution from your JRB account equal to your housing allowance, contact us or call 888-JRB-FREE (572-3733) by the first week of December.

Check the balances in your Flexible Spending Accounts

If you funded a flexible spending account (FSA) in 2018 to pay for out-of-pocket medical expenses, this is a good time to check your balance. FSA balances must be spent by March 15, 2019. You forfeit balances remaining in the account after that date. If money remains in your FSA, this may be a good time to schedule a medical appointment or buy health care items such as eyeglasses.

Check if you are eligible for an Alternative Minimum Tax Refund

About 5 million taxpayers paid the Alternative Minimum Tax (AMT) in 2017, but as a result of the TCJA, only about 200,000 tax filers are expected to pay the AMT in 2018. If you paid the AMT in 2017 but are not required to pay it in 2018, you may be able to claim the Prior-Year Minimum Tax Credit. Use IRS Form 8801 to calculate the credit.

Moving expenses are not tax deductible

Starting with tax year 2018, moving expenses are not tax deductible. Moving expenses for which your employer reimbursed you are considered income for tax purposes. The only exception is reimbursement in 2018 for a move made in 2017.

Despite the rhetoric about simplifying the tax code, tax preparation remains complicated. The changes in the tax code that go into effect this year only add to the complexity. These tips can get you started planning or raise questions you can ask your tax preparer.