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Published on: 10/25/2016 • 14 min read

Checklist for Year-End Tax Planning

What are appropriate checklists for year-end tax planning?

In my experience, tax planners often develop checklists to guide taxpayers toward year-end strategies that might help reduce taxes. Throughout the year, I publish many timely tax related articles (summarized here).  Now that everyone has filed, I wanted to put together a checklist of things that you should review for yourself for with your tax and financial planning team.  I have grouped the list into several different categories, such as “Filing Status” or “Employee Matters,” for ease of reading. As year-end approaches, it might be wise to review each suggestion under the categories that apply to you.

Filing status and exemptions:

  • If you’re married (or will be married by the end of the year), you should compare the tax liability for yourself and your spouse based on all filing statuses that you might select. Compare the results when you file jointly and when you file married separately. Determine which results in lower overall taxation.
  • Exemptions for yourself, spouse and kids are no longer allowed in 2018 and going forward, however, the standard deduction has doubled. It would be smart to analyze the numbers to determine if these changes result in higher taxes so that you are not surprised when you file your taxes.  Some taxpayers may end up with a higher tax bill.

 Family tax planning:

  • Sometimes it is possible to reduce your overall taxes by shifting income to other family members in lower brackets.  Review your planning and family and determine whether you can and should shift income to family members who are in lower tax brackets to minimize overall taxes. The kiddie tax rules apply to those:
    1. Under age 18,
    2. Age 18 whose earned income doesn’t exceed one-half of their support, and
    3. Age 19 to 23 who are full-time students and whose earned income doesn’t exceed one-half of their support.
  • There was one important change to the Kiddie Tax rules to be aware of.  Prior to 2018, parents could elect to treat their kids income to be taxed at the parents rates.  That is no longer allowed and thus the kids income would now be taxed at Trust tax rates which could be significantly higher!  We highly recommend revisiting your kids taxes to make sure you don’t end up paying more in taxes.
  • In 2018, the child tax credit has increased to $2,000 per eligible child and the phaseout amounts have also increased.
  • Don’t forget to use any remaining balances in flexible spending accounts that could be lost if not used.
  • Take advantage of tax credits for higher education costs if you’re eligible to do so. These may include the American Opportunity (Hope) credit and the Lifetime Learning credit. Note that these credits are based on the tax year rather than the academic year. Therefore, you should try to bunch expenses to maximize the education credits.
  • If you have qualified student loans (and meet all necessary requirements), you may be entitled to take a deduction for the interest you paid during the year. The maximum amount you can deduct is $2,500.
  • Make sure that you take any needed distributions from your Section 529 Plans that can be backed-up by actual payments during calendar year 2018.


Estate matters:

  • Consider making gifts of up to $15,000 (for 2018) per person federal gift tax free under the annual gift tax exclusion. Use assets that are likely to appreciate significantly for optimum income tax savings.
  • The new unified credit has been increased to $11,180,000 per taxpayer in 2018, up from $5,490,000.  Now is the time to update your estate plan and maximize your higher exemption amount.

Employee matters:

  • Self-employed individuals (who generally use the cash method of accounting) can defer income by delaying the billing of clients until next year. You may also be able to defer a bonus until the following year.
  • Use installment sale agreements to spread out any potential capital gains among future taxable periods.
  • Employees can no longer deduct their unreimbursed expenses if these expenses exceed 2 percent of annual adjusted gross income (AGI). This itemized deduction was eliminated in 2018 and going forward.  For taxpayers who relied on this deduction in prior years, they should try to renegotiate their employment contract with their employer to avoid losing valuable deductions.  Employers can still deduct documented reimbursements from their employees such as miles and other normal costs as part of their employees’ jobs.

Business Owner – income and expenses:

  • Manage your year-end expenses and consider accelerating expenses (such as repair work and the purchase of supplies and equipment) in the current year to lower your tax bill.
  • Increase your employer’s withholding of state and federal taxes to help you avoid exposure to estimated tax underpayment penalties.
  • If you have significant business losses this year, it may be possible for you to apply them to the prior year’s returns to receive a net operating loss carryback refund. If you had significant income in prior years, you should maximize the current year’s losses by deferring income if possible. You also can elect NOT to carryback any net operating losses which in some cased may be a better option if you anticipate large amounts of income in the future.  To do this, you must make the election on a timely filed return.  You can’t go back and file late returns.
  • In certain circumstances, it may be possible for the full cost of last-minute purchases of equipment to be deducted currently by taking advantage of Section 179 deductions. The new tax law has expanded the Section 179 deduction and increased the Bonus Depreciation deduction amount to 100% for 2018.  However, even though these deductions offer larger deductions, you may want to spread out your depreciation over several years to take full advantage of the new 199A business income tax pass-thru deduction for those businesses taxes as partnerships, S Corps, and disregarded entities.  There are also new IRS Regulations on the taxation when audited that you and your legal team should consider.
  • Generally, you can contribute to your retirement plan at any time up to the due date (plus extensions) for filing a given year’s tax return. Keep in mind, you must have a plan in place to do so and not all plan options can be opened after the prior year has ended.
  • For small businesses (or independent contractors), you can consider setting up aretirement plan (401k, SEP IRA, SIMPLE IRA or a Defined Benefit Plan). These may allow you to defer taxes on income of anywhere from around $12,500 to $55,000 in 2018 (or possible much more if you use a Defined Benefit plan).
  • If you own an interest in a partnership or S corporation, know your basis. If you don’t have any basis in your business, you cannot deduct a loss from it for this year.  If you are planning on taking distributions, don’t over distribute in excess of your basis or you could end up paying unexpected taxes.
  • Under the new tax law, section 199A was created for businesses where the owners pay their taxes on their personal tax returns such as partnerships, S Corps, and disregarded entities. You may be entitled to a new deduction worth up to 20% of your net income.  This new section can be rather complicated so seek advice from your CPA on how best to maximize this benefit and if you qualify.
  • The IRS has published proposed final regulations as a result of the new tax law. Beware of aggressive tax strategies for shifting income to other businesses or recharacterizing W-2 employees to 1099 contractors.  The IRS is well aware of the all the possible “games” that can be played with trying to benefit more from the new laws.  Proceed with caution.

Financial investments:

  • Pay attention to the changes in the capital gains tax rates for individuals and try to sell only assets held for more than 12 months. Generally, the capital gains rates are driven by your income levels and don’t forget about the Net Investment Income Tax of 3.8% for those who make over $250K of income.
  • Review your Adjust Gross Income (AGI) and then review your passive investment income to see if you are going to get “hit” with the 8% Obamacare Tax – if so, perhaps you can reduce your AGI below that threshold.
  • Consider selling stock if you have capital losses this year that you need to offset with capital gain income (sometimes called “tax-loss harvesting”).
  • If you plan to sell some of your investments this year, consider selling the investments that produce the smallest gain.
  • If you are in a lower tax bracket this year, consider converting a portion of your IRA to a Roth IRA.
  • If you made any IRA Rollovers in 2018, make sure you didn’t make any common IRA rollover mistakes.
  • Make sure you take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retirement plan). RMDs from IRAs must begin by April 1 of the year following the year you reach age 70 ½,. If you don’t take your RMDs, the penalty can be 50%!  Ouch! Also, don’t forget to withhold the appropriate amount for taxes and/or make sure that you make an estimated tax payment to cover your RMD to avoid penalties.
  • If you are over age 70 ½, you can also consider doing a Qualified Charitable Distribution (QCD) that will be a tax free distribution from your IRA to a charity that will NOT hit your tax return (and possibly impact other deductions). For those that will no longer itemize given the tax law changes, a QCD is an excellent way to give to charity.
  • Don’t forget to split inherited IRAs by year’s end. If your client, an IRA owner, died in 2017 and had multiple individual beneficiaries named on a beneficiary form, then they can each use their own life expectancy for calculating required minimum distributions (the stretch IRA) if the inherited IRAs are split into separate shares before the end of this year. Make sure this is done, otherwise the beneficiaries will be forever stuck using the age of the oldest beneficiary, even if they split their shares in a later year. The split must be done by the end of the year after the IRA owner’s death.
  • If you lived in a disaster area, also don’t forget about the Tax Relief act of 2017 allowing you can access more of your IRAs without penalties. Here are some tips I wrote about related to Hurricane Harvey (but it may benefit you if you lived in another Federally Declared Disaster Area.


Personal residence and other real estate:

  • Make your early January mortgage payment (i.e., payment due no later than January 15 of next year) in December so that you can deduct the accrued interest for the current year that is paid in the current year.
  • Starting in 2018, the limit on deduction mortgage interest for principal amounts of $1M has been reduced for new mortgages to $750K. Older mortgages are still grandfathered, so remember the new rules if you are considering refinancing or taking on new mortgages.
  • Under the new tax law, State and Local Taxes, also known as SALT taxes, are limited to $10,000 per tax year itemized. This change will affect taxpayers who used to take the itemized deduction versus the new standard deduction amount in 2018.  It’s important to run the numbers before year-end so you don’t end up with a surprise tax due when you file.
  • If you want to sell your principal residence, make sure you qualify to exclude all or part of the capital gain from the sale from federal income tax. If you meet the requirements, you can exclude up to $250,000 ($500,000 for married couples filing jointly). Generally, you can exclude the gain only if you used the home as your principal residence for at least two out of the five years preceding the sale. In addition, you can generally use this exemption only once every two years. However, even if you don’t meet these tests, you may still be able to qualify for a reduced exclusion if you meet the relevant conditions.
  • Consider structuring the sale of investment property as an installment sale to defer gains to later years.
  • Maximize the tax benefits you derive from your second home by modifying your personal use of the property in accordance with applicable tax guidelines.


Retirement contributions:

  • Make the maximum deductible contribution to your IRA or consider a Roth IRA if you are eligible. Even if you are not eligible for a ROTH IRA, you may still be able to contribute through a “Back Door” ROTH IRA contribution.
  • Try to avoid premature IRA payouts to avoid the 10 percent early withdrawal penalty unless you meet an exception. Exceptions may include first time home buyers, higher education expenses, disability as examples.
  • Contribute the full amount to a spousal IRA, if possible. If you meet all the requirements, you may be able to deduct annual contributions of $5,500 to your traditional IRA and $5,500 to your spouse’s IRA. You may be able to contribute and deduct more if you’re at least age 50 in the form of a catch contribution of $1,000.
  • Set up a retirement plan for yourself if you are a self-employed taxpayer.
  • Set up an IRA for each of your children who have earned income. Consider a Roth IRA for your children as it may be more beneficial than a traditional IRA.
  • If possible, minimize the income tax on Social Security benefits by lowering your income below the applicable threshold.


Charitable donations:

  • Make a charitable donation (cash or even old clothes) before the end of the year. Remember to keep all your receipts from the recipient charity.
  • Give appreciated stock rather than cash when contributing to charities. This may help you permanently eliminate income tax on the built-in gain in the stock, while at the same time, maximizing your charitable deduction.
  • Use a credit card to make contributions to ensure that they can be deducted in the current year.
  • Consider making a tax-free IRA distribution for charitable purposes if you are age 70 ½ or older that also combos as a RMD.
  • If you are over age 70 ½, you can also consider doing a Qualified Charitable Distribution (QCD) that will be a tax free distribution from your IRA to a charity that will NOT hit your tax return (and possibly impact other deductions). For those that will no longer itemize given the tax law changes, a QCD is an excellent way to give to charity.


Miscellaneous matters:

  • Take advantage of the adoption tax credit for any qualified adoption expenses you paid. In 2018, you may be able to claim up to $13,810 (up from $13,570 in 2017) per eligible child (including children with special needs) as a tax credit. The credit begins to phase out once your modified AGI exceeds $207,140 and it’s eliminated when your modified AGI reaches $247,170.
  • Under the new law, itemized miscellaneous deduction have been eliminated in 2018. You can no longer deduct your tax prep fees or even your investment advisor fees.  Unreimbursed employee expenses are no longer allowed.  Even certain casualty losses unless deemed a federal disaster may no longer be allowed.
  • Medical expenses are still deductible under the new law and you might maximize them by bunching such expenses in the same year, to the extent possible, to meet the threshold percentage of your AGI.
  • The “bunching” strategy for itemized deductions still may benefit taxpayers. If you can double up on your itemized medical, charitable, SALT, investment interest and mortgage interest expenses in a tax year, you may achieve a higher deduction them the new standard deduction amounts.  You would employ this strategy as every other year strategy to achieve maximum benefit.
  • Under the new law, Alimony will no longer be deductible for NEW divorces starting in 2019. Older divorce decrees are still in effect and the deduction will be allowed, but for some divorced taxpayers, it may be work while to change the decrees.
  • Don’t forget, for 2018, the individual mandate still exists, and a penalty will be accessed on your tax return if you did not have proper coverage. Starting in 2019, the penalty will still be applicable, however, the amount of the penalty will be $0, so in effect, there is no longer a penalty.



Disclaimer: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Avidian Wealth Solutions (“STA”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  STA is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the STA’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a STA client, please remember to contact STA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.


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