HG Wealth Management: 2018 Year-End Tax Strategies

It’s hard to believe that the end of the year is only three months away. With the implementation of the Tax Cuts and Jobs Act (TCJA) late last year, there are a few new things that you need to know. There’s still time for you to take steps that can save you money on taxes. Here is what you should consider now:

• Rebalance Your Portfolio. US stocks are up over 10% so far this year, while bonds and international stocks are down. Now is an excellent time to rebalance your portfolio. Make sure your investments are in line with your financial goals, time horizon, and tolerance for risk.
• Harvest Capital Losses. When rebalancing your portfolio, try to match any capital gains with capital losses to minimize taxes. If your capital losses exceed your gains (or if you only realize losses), remember that you can still offset up to $3000 in capital losses against other taxable income. Any access losses can be applied to next year’s taxes.
• The market may continue to go up, but now may be a great time to take your annual Required Minimum Distribution (RMD). If you’re 70 ½ or older or you own inherited IRAs, take your RMD to avoid the 50% tax penalty.
• Make your Gift-Giving List – whether you plan to donate to charity or give to family members.
• Bunch Charitable Contributions. The doubling of the standard deduction may prevent many from itemizing in 2018. Bunch your charitable contributions or set-up a donor-advised fund. For example, instead of giving your alma mater $2000 this year and every year take care of five years by giving them $10,000 this year and itemize your donation.
• As for charities, think about Donating Appreciated Assets such as stocks, bonds, mutual funds, etc. Also, if you are age 70 ½ or older, you can transfer up to $100,000 per year from your traditional IRA directly to charity. These charitable transfers count as part of your RMD but are not included in taxable income.
• Use the Annual Gift Tax Exclusion. As for family members, you can give up to $15,000 ($30,000 if married) each to a child, grandchild or any other person in 2018 without having to pay gift tax or tap your lifetime estate and gift tax exemption.
• Contribute to a 529 Plan for your kids or grandchildren. You can avoid gift tax on as much as $75,000 ($150,000 if married) in a single year. For Illinois residents, contributions up to $10,000 ($20,000 if married) to the Illinois Bright Start 529 College Savings Plan are deductible in computing Illinois taxable income.
• TCJA lowers the threshold for Deducting Medical Expenses for all taxpayers from 10% of adjusted gross income (AGI) to 7.5% through December 31, 2018. If you or a family member has already racked up significant unreimbursed medical expenses this year, you may want to go ahead an load up on additional medical services such as elective surgery, major dental work, hearing aids, eyeglasses, drug prescriptions, etc. On January 1, 2019, the medical expense threshold goes back to 10%.