As we near the end of year here are a few last-minute tax saving tips:
- Do you think you’re going to owe federal income tax for the year? Increase your tax withholding, especially if you think you may be subject to an estimated tax penalty. Steps to take: ask your employer to increase your withholding for the remainder of the year to cover any possible shortfall. This strategy can also be used to make up for low or missing quarterly estimated tax payments. With all the recent tax changes, it may be especially important to review your withholding in 2018.
- Are you 70 ½? – at this age you are generally required to start taking a required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans. Take any distributions by the date required. The penalty for failing to do so is substantial: 50% of any amount that you failed to distribute as required.
- Have you maxed out your Retirement savings for the year? For 2018, you can contribute up to $18,500 to a 401(k) plan ($24,500 if you’re age 50 or older) and up to $5,500 to a traditional or Roth IRA ($6,500 if you’re age 50 or older). The window to make 2018 contributions to an employer plan generally closes at the end of the year, while most IRA’s allow you until the due date of your federal income tax return (not including extensions) to make 2018 IRA contributions. Why should you do this? Because maxing out your contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your 2018 taxable income. If you haven’t already contributed up to the maximum amount allowed, consider doing so by year-end.
- Need help? Call us! – There’s a lot to think about when it comes to tax planning. It only makes sense to talk to a tax professional who can evaluate your situation and help you determine if any year-end moves make sense for you.