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Your 2018 Financial To-Do List


What financial, business, or life priorities do you need to address for 2018? Now is a good time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to lowering your taxes. You have plenty of options. Below are a few considerations:


Can you contribute more to your retirement plans this year?

In 2018, the contribution limit for a Roth or traditional IRA remains at $5,500 ($6,500 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA: singles and heads of household with MAGI above $135,000 and joint filers with MAGI above $199,000 cannot make 2018 Roth contributions. (1)


For tax year 2018, you can contribute up to $18,500 to any kind of 401(k), 403(b), or 457 plan, with a $6,000 catch-up contribution allowed if you are age 50 or older. If you are self-employed, you may want to look into whether you can establish and fund a Solo 401(k) before the end of 2018; as employer contributions may also be made to Solo 401(k)s, you may direct up to $55,000 into one of those plans. (1,2)


Your retirement plan contribution could help your tax picture.

If you won’t turn 70½ this year and you participate in a traditional qualified retirement plan or have a traditional IRA, you can cut your 2018 taxable income through a contribution. Should you be in the 35% federal tax bracket, you can save $1,925 in taxes as a byproduct of a $5,500 regular IRA contribution. (3)

What are the income limits on deducting traditional IRA contributions?

If you participate in a workplace retirement plan, the 2018 MAGI phase-out ranges are $63,000-$73,000 for singles and heads of households, $101,000-$121,000 for joint filers when the spouse making IRA contributions is covered by a workplace retirement plan, and $189,000-$199,000 for an IRA contributor not covered by a workplace retirement plan, but married to someone who is. (2)

Roth IRAs and Roth 401(k)s, 403(b)s, and 457 plans are funded with after-tax dollars, so you may not take an immediate federal tax deduction for your contributions to these plans. The upside is that if you follow I.R.S. rules, the account assets may eventually be withdrawn tax free. (4)

Your tax year 2018 contribution to a Roth or traditional IRA may be made as late as the 2019 federal tax deadline – and, for that matter, you can make a 2017 IRA contribution as late as April 17, 2018, which is the deadline for filing your 2017 federal return. There is no merit in waiting until April of the successive year, however, since delaying a contribution only delays tax-advantaged compounding of those dollars. (4)

Make a charitable gift.

You can claim the deduction on your 2018 return, provided you itemize your deductions with Schedule A. The paper trail is important here. If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record or a written communication from the charity with the date and amount. Incidentally, the I.R.S. does not equate a pledge with a donation. Contributions to individuals are never tax deductible. If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check. (5)

Can you take a home office deduction?

If your income is high and you find yourself in one of the upper tax brackets, look into this. You may be able to legitimately write off expenses linked to the portion of your home exclusively used to conduct your business. The percentage of costs you may deduct depends on the percentage of your residence you devote to your business activities. If you qualify for this tax break, part of your rent, insurance, utilities, and repairs may be deductible. (6)

Open an HSA.

If you are enrolled in a high-deductible health plan, you may set up and fund a Health Savings Account in 2018. You can make fully tax-deductible HSA contributions of up to $3,450 (singles) or $6,900 (families); catch-up contributions of up to $1,000 are permitted for those 55 or older. HSA assets grow tax deferred, and withdrawals from these accounts are tax free if used to pay for qualified health care expenses. (1)

Review your withholding status.

Should it be adjusted due to any of the following factors?

• You tend to pay a great deal of income tax each year.

• You tend to get a big federal tax refund each year.

• You recently married or divorced.

• A family member recently passed away.

• You have a new job, and you are earning much more than you previously did.

• You started a business venture or became self-employed.


Consider the tax impact of any upcoming transactions.

Are you planning to sell (or buy) real estate next year? How about a business? Do you think you might exercise a stock option in the coming months? Might any large commissions or bonuses come your way in 2018? Do you anticipate selling an investment that is held outside of a tax-deferred account? Any of these actions might significantly impact your 2018 taxes.

Lastly, should you make 13 mortgage payments in 2018?

If your house is underwater, this makes no sense, and you could argue that those dollars might be better off invested or put in your emergency fund. Those factors aside, however, there may be some merit to making a January 2019 mortgage payment in December 2018. If you have a fixed-rate loan, a lump-sum payment can reduce the principal and the total interest paid on it by that much more.

Citations

1 - cbsnews.com/news/I.R.S.-allows-higher-retirement-savings-account-limits-in-2018/ [10/24/17]

2 - forbes.com/sites/ashleaebeling/2017/10/19/I.R.S.-announces-2018-retirement-plan-contribution-limits-for-401ks-and-more/ [10/19/17]

3 - turbotax.intuit.com/tax-tips/tax-planning-and-checklists/4-last-minute-ways-to-reduce-your-taxes/L3eJ81kRC [11/9/17]

4 - irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [10/25/17]

5 - irs.gov/taxtopics/tc506 [9/21/17]

6 - irs.gov/businesses/small-businesses-self-employed/home-office-deduction [10/26/17]

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


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