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Tax season is a good time to not only prepare to file but more importantly, plan tax moves for the upcoming year. With the recent passage of the Tax Cuts and Jobs Act of 2017, there are more changes than usual and thus more planning opportunities. Below are several areas where you could see changes or take possible actions. As with any tax discussion, know that your unique tax fact pattern could be different than what is being discussed and thus we recommend consulting both your CPA or tax preparer as well as your Bridgeworth professional before you take any action.

There is still time to fund your IRAs from 2017

You have until April 17th of 2018 to contribute funds for 2017 to your Roth and Traditional IRAs. This is one of the few areas of tax planning where you can actually contribute retroactively after the end of the year. The contributions limits for IRAs during 2017 is $5,500, or $6,500 for those 50 and older, and remember you have to have earned income to contribute.

Be aware that your 1099s from your investment accounts could be delayed

Funds or ETFs that hold complex fixed income, real estate, commodities, and other such instruments may be beneficial for you to hold as an investment but take longer to classify their holdings for tax purposes. In the past, most custodians would go ahead and issue a preliminary 1099 early in the tax filing season and then have to come back and issue a corrected one in March or early April. This would sometimes result in tax filers having to decide if the change was material enough to warrant filing an amended return. A new trend we are seeing is for custodians to issue a preliminary 1099 when you hold one of these types of investments but make it clear to you that the actual 1099 for filing purposes will not be issued until early to mid-March.

Can you get rid of old tax records?

Per the IRS you should keep your tax records for three years from the date you filed your original returns. There are other circumstances where the IRS can look back six or even seven years depending if you claim a loss from worthless securities, had a bad debt deduction or if you didn’t include all your earnings on your original Form 1040. Bottom line: the safe amount of time to keep records is generally seven years from the date you filed. Thus, for most tax filers you should have just passed or be approaching the seven-year anniversary of filing your 2010 return.

Your take-home paycheck may be changing

If your take-home pay hasn’t already increased, it probably will soon. According to the US Treasury, about 90% of Americans should see an increase in their take-home pay due to the passage of the recent tax bill. The amount of increase will vary widely depending on your fact pattern, from a few dollars to other cases where it may be much more. These withholding amounts are calculated based on the form W4 you complete with your employer. This form tells employers how much they should be withholding from your pay based on your income, filing status, and other requests you can make. These new withholding tables were set to take effect during February, thus the reason they are just showing up in many workers’ paychecks.

Analyze how the new tax bill affects you

The Tax Cuts and Jobs act of 2017 that was passed just before year-end is thought to represent the largest change in taxes in over thirty years. The new rules essentially don’t go into effect until 2018, so while it will not affect the taxes you are filing this tax season, it’s important to know the new rules for planning purposes. This is an area in which you should either consult your tax preparer, your CERTIFIED FINANCIAL PLANNER™ professional, or be prepared to do a lot of research. There are many websites that have calculators aimed at illustrating how the new bill will impact you but keep in mind they are based on broad sets of your data. Your specific fact pattern could cause that calculation to be incorrect, and possibly by a substantial amount.

Make plans for any gifts you may be giving or receiving

The gift exclusion amount is rising to $15,000 for 2018 (it has been at $14,000 since 2013.) This is the amount the IRS allows someone to gift away without any tax consequences. Remember, for a married couple you can essentially gift away twice as much (or $30,000) starting in 2018 without having to pay any gift tax amount. These amounts are for a calendar year.

New limits if you are maxing out your 401(k) or 403(b)

For 2018 the new limit for maximizing your 401(k) or 403(b) contribution is $18,500. This represents a $500 increase from 2017. For those that are 50 and older, you can still make a “catch-up” contribution of $6,000 (unchanged from 2017), totaling a maximum contribution of $24,500.

Make plans to fund any 529 plans

You will need to check with your advisor (or do the legwork yourself) because the State tax advantages for 529s can vary greatly between state plans, but it’s helpful to know these amounts to take advantage of any possible tax benefits. For the state of Alabama residents, the State allows a $5,000 per person ($10,000 for married filing jointly) annual deduction for contributions to the state’s 529 plan. Note this also includes transfers to the State of Alabama plan from other out-of-state plans. So, if you have a 529 plan in another state you can transfer those dollars (tax-free) to the Alabama plan, have it considered as a contribution for state tax purposes and benefit from the Alabama state tax deduction.

Be smart about how you give to charity

For those that are charitably minded it’s always been smart to look at possible strategies that could improve the tax benefits of your gift. With the standard deduction increasing from $13,000 to $24,000 in 2018 for joint filers ( $6,500 to $12,000 for those filing individually) this means more tax filers will not be itemizing deductions, thus not benefiting from the charitable contribution deduction. Some strategies to consider for those making charitable contributions are charitable lumping, donating appreciated investments and donating all or part of your Required Minimum Distribution (for that 70 ½ and older). For more information on these strategies reach out to your advisor, and stay tuned for an upcoming blog post with more details about charitable lumping.

Keep your investing tax-efficient

Of all the factors that can lower investment returns, taxes are one of the biggest. It’s important to keep any tax effect on your investments as minimal as possible. One way to do this is to maximize contributions to tax-advantageous vehicles such as a 401(k), IRA and 529 plan. Another technique, which is admittedly harder today with the rise in global stock markets is tax loss harvesting (selling holdings with a loss in order to recognize it for tax purposes and potentially offset gains). On the flip side, you may find yourself in a situation where your income will be lower for a year or two which creates an opportunity to harvest gains (selling holdings with a gain in order to recognize that income in a year in which it will be taxed at a lower rate). A related strategy may be a Roth IRA conversion to take advantage of your temporary lower tax brackets. Finally, for taxable investment accounts, you want to strive to keep the investment distributions (capital gains and/or dividends) to a minimum. This can be done, in part, by selecting funds with a lower turnover rate.

Again, as you consider any of these actions be sure to discuss them with your Bridgeworth professional and your CPA or tax preparer to make sure any decisions work in unison from a tax, financial planning, and overall investment standpoint.

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Bridgeworth is now a part of Savant Wealth Management as of 11/30/2023. Savant Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois.