Radio: Year-End Tax Saving Ideas

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On Tuesday, November 13, 2018, David John Marotta appeared on Radio 1070 WINA’s Schilling Show to discuss several tax saving ideas you can do before the year ends.

Listen to the audio here:

Or read a summary of the savings ideas here:

Harvest capital losses for your taxes. The difference between what you paid for an investment and its current worth is called a “capital gain” or a “capital loss.” As long as you continue to hold the investment, the gain or loss is called unrealized. Selling the investment is called realizing the gain or loss, which you must report on your taxes. Realized capital gains are commonly taxed at a reduced 15%. Realized losses can offset realized gains, but you are also allowed to deduct up to $3,000 of capital losses against other types of income. If you have net losses in excess of $3,000 in one year, you can carry your losses forward to future years. This technique is named tax-loss harvesting and is one method how shrewd investors save on taxes.

Use your charitable giving to save on taxes. If you take the standard deduction and are charitably inclined, you might benefit from acquiring state tax credits for your gift. Although these gifts may not be fully tax deductible, because you take the standard deduction whether they are deducted on the federal return does not make a difference. If, without the charitable deduction, the standard deduction is worth more than itemizing, you would likely benefit from trying gift clumping or qualified charitable deductions. If you are in the 15% capital gains tax bracket or higher, you may benefit from giving appreciated stock instead of cash. If you give small amounts to many different charities, you may benefit from the simplicity of opening a Donor Advised Fund.

Convert some of your Traditional retirement balance to Roth. Roth conversions are almost always a good idea, converting something is almost always better than doing nothing, and converting to Roth without delay is valuable. Waiting just one year means that you lose a portion of the growth in your traditional IRA to income taxes later. There are many conversion strategies, but there are two simple ones that are normally a good idea, one for if those older than 70 1/2 years old and one for the younger. You can read more about them in “Two Simple But Effective Conversion Target Calculations.”

Increase your 2019 retirement contributions. The employee elective deferral is up another $500, which means you can call your payroll department to increase your deferral for 2019. You’ll want to do this before the January payroll so you can ensure you get the full amount in. Also, if you are utilizing the automatic millionaire to fund your IRA through a monthly deposit, you can also take this time to increase those deposits to meet the new limits.

Make a plan for next year’s Required Minimum Distribution (RMD). If you are charitably inclined, you may want to use your RMD to make a Qualified Charitable Distribution. If you are converting next year, you will want to schedule your RMD early in the year so that your RMD comes out first. However, if you don’t need your RMD to live off of, waiting until the end of the year can provide the best savings as is explained in “The Complete Guide to Timing Your RMD.”

Fund your Health Savings Account (HSA). If you qualify for funding your HSA, then you should fund your HSA to the maximum. Your health insurance costs more because of this benefit; you should take advantage of it. If your insurance started this December 1st, there is a special exception that allows you to contribute to the HSA as though you had been eligible for the whole year. Read “When Partial-Year HSA Contribution Limits Don’t Apply” to make sure you qualify and be sure to review the current contribution limits.

Fund your Roth for 2018. Thankfully, you have until your file your taxes in 2019 to contribute to your Roth IRA, but if you know you have enough earned income to contribute then there’s no reason to wait. In general, we recommend that you fund your Roth IRA to the maximum even if you feel like you can’t afford it.

Photo by Tommy Bebo on Unsplash
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Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. Her most popular post: The Complete Guide to Your Washing Machine

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)