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Top Tax Strategies for the End of the Year

By taking appropriate measures before year-end, taxpayers can try to maximize the benefits and minimize the burdens under the new law.

  • Always, always, always save:  Maximize retirement plan contributions before year end. This is a perennial suggestion, as far too many taxpayers fail to make the most of their 401(k)s and other savings accounts.
  • Manage itemized deductions:  Compare reduced itemized deductions to which you might be entitled to this year to the new standard deduction. If you won’t benefit from increasing itemized deductions such as charitable contributions (because the standard deduction will be greater), you can consider bunching charitable contributions into every other year, setting up a donor-advised fund, or, if over 70-1/2, making charitable contributions through IRA distributions. If you are taking the itemized deduction this year, you can add to it by cleaning out closets, dressers, and storage areas and donating unused items to charitable organizations such as Amvets, Goodwill, and the Salvation Army.
  • Hit in the high-tax states:  Those subject to the $10,000 deduction cap on state and local taxes, should preserve real estate tax deductions by allocating to a business return whenever possible.
  • Maximize the qualified business income deduction:  Individuals who own interests in a sole proprietorship, partnership, LLC, or S corporation may be able to deduct up to 20 percent of their qualified business income. However, the deduction is subject to various rules and limitations.  For example, taxpayers can adjust their business’ W-2 wages to maximize the deduction. Also, it may be beneficial for taxpayers to convert their independent contractors to employees where possible.
  • Look at wages in pass-through entities:  If a small-business is eligible for the 20 percent deduction for pass-through entities, determine whether any changes in the compensation structure will maximize the deduction.
  • Buy a large vehicle:  Buy an SUV or truck that is heavier than 6,000 pounds for a business to take bonus depreciation up to 100 percent of the cost of the vehicle.
  • Go for a cost-segregation study:  If a taxpayer has purchased or is purchasing real estate by year’s end to rent out or use in business, do a cost segregation study so you can capture the bonus depreciation on land improvements and contents of the building.
  • Loss harvesting:  Sell stocks that may produce a loss. Taxpayers can deduct up to $3,000 ($1,500 for married filing separately) of their excess losses, which reduces overall income. If the taxpayer sold stocks that resulted in a gain, selling stocks that produce a loss will offset the gain. 
  • Recapture AMT:  With the new higher income limits for individuals exposed to the Alternative Minimum Tax, more taxpayers will have the opportunity to recapture the AMT paid in prior years.
  • Build that cryptocurrency paper trail:  Taxpayers who buy, sell or mine cryptocurrency should get accurate records in order. Taxpayers without accurate records could be subject to higher-than-normal gains. 
  • Insurance issues:  Enhance insurance coverage due to the loss of personal casualty and theft-loss deductions that are not part of federally declared disasters.
  • Revisit qualified tuition plans:  Earnings in a 529 college savings plan can now be used to pay for tuition at an elementary or secondary public, private or religious school, up to $10,000 per year. If you are paying tuition for their children or grandchildren to attend elementary or secondary schools, you can set up or revisit your 529 plans.
  • Watch out for home equity debt interest:  Interest paid on home equity loans and lines of credit is deductible if the funds were used to buy or substantially improve the home that secures the loan; but it forces you to trace how the proceeds were used. If you used the cash to pay off credit card or other personal debts, the interest isn’t deductible, even if the payoff occurred prior to 2018.