2018 Year End Planning
Year-end planning for 2018 takes place against the backdrop of a new tax law-the Tax Cuts and Jobs Act-that makes major changes in the tax rules for individuals and businesses.
We have compiled a checklist of actions that may help you save tax dollars if you act before year end. Not all actions will apply in your particular situation; however, you (or a family member will likely benefit from some of them.
Please review the following list and contact us if you have any questions.
Businesses & Business Owners:
Pass-through Income Deduction
- Businesses (other than C corporations) may be entitled to a deduction of up to 20% of their qualified business income.
Expensing vs. Capitalizing
- A 100% bonus first year depreciation deduction for machinery and equipment bought used (with some exceptions) or new, if purchased and placed in service in 2018.
- For 2018, the expensing limit is $1,000,000, and the investment ceiling limit is $2,500,000.
- Businesses are able to use the cash (as opposed to accrual) method of accounting in 2018 and later years if gross receipts are $25 million or less.
Timing of Income and Expenses
- Defer income into 2019 or accelerate deductions by making purchases in 2018 to come under the dollar thresholds (or be subject to a smaller phase-out of deductions) for 2018.
- A corporation that anticipates a small net operating loss (NOL) for 2018 (and substantial net income in 2019) may find it worthwhile to accelerate just enough of its 2019 income (or to defer just enough of its 2018 deductions) to create a small amount of net income for 2018.
- Defer a debt-cancellation event until 2019.
- Dispose of a passive activity in 2018 if doing so will allow you to deduct suspended passive activity losses.
- Postpone income until 2019 and accelerate deductions into 2018 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2018.
- Arrange with your employer to defer, until early 2019, a bonus that may be coming your way.
- Pay deductible expenses with a credit card before the end of the year.
- Offset capital gains by realizing capital losses before year-end. Be aware of the wash sale rule.
- Maximizes any available retirement options with employee deferral.
- Consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so.
- Look into a backdoor ROTH contribution, if you have no other IRAs.
- With an increase in the standard deduction, consider bunching medical expenses and/or donations into the same year.
- Consider donating appreciated investments to increase your charitable deductions without causing capital gains.
- Make sure you take any required minimum distributions (RMD) if you are age 70-1/2 or older.
- Make charitable donations directly from your IRA to meet your RMD with no increase in reported income.
- Open a traditional IRA and put in the maximum amount.
Estate and Gift Tax
- Gift up to $15,000 per person (in 2018) which can save you gift and estate taxes and no taxes charged to your loved ones.
Theft or Loss
- If you were in a federally declared disaster area and suffered uninsured/unreimbursed disaster-related losses, settle the claim quickly to maximize your casualty loss deduction for 2018.
These are just some of the year-end steps that can be taken to save taxes. Contact us at (425) 771-6055 if you have any questions.