Year-End Tax & Financial To-Do List for Individuals

With 2019 approaching, here is a quick list of tax and financial to-dos you should address before 2018 ends:

Check your Flexible Spending Account (FSA) balance. If you have an FSA for health care expenses, you need to incur qualifying expenses by December 31 to use these funds or you will potentially lose them. (Some plans allow you to carry over up to $500 to the following year or give you a 2.5-month grace period to incur qualifying expenses). Use expiring FSA funds to pay for eyeglasses, dental work, eligible medications, or health products.

Max out tax-advantaged savings. Reduce your 2018 income by contributing to traditional individual retirement accounts (IRA), employer-sponsored retirement plans or Health Savings Accounts to the extent you are eligible. (Certain vehicles, including traditional and Simple Employee Pension Plan IRAs, allow you to deduct contributions on your 2018 return if they are made by April 15, 2019).

Take required minimum distributions (RMD). If you have reached age 70½, you generally must take RMDs from IRAs or qualified employer-sponsored retirement plans before the end of the year to avoid a 50 percent penalty. If you turned 70½ this year, you have until April 1, 2019, to take your first RMD. But keep in mind that, if you defer your first distribution, you will have to take two next year.

Consider a qualified charitable distribution (QCD). If you are 70½ or older and charitably inclined, a QCD allows you to transfer up to $100,000 tax-free directly from your IRA to a qualified charity and to apply the amount toward your RMD. This is a big advantage if you would not otherwise qualify for a charitable deduction (because you do not itemize, for example).

Use it or lose it. Make the most of annual limits that do not carry over from year to year, even if doing so will not provide an income tax deduction. For example, if gift and estate taxes are a concern, make annual exclusion gifts up to $15,000 per recipient. If you have a Coverdell Education Savings Account, contribute the maximum amount you are allowed.

Contribute to a Section 529 plan. Section 529 prepaid tuition or college savings plans are not subject to federal annual contribution limits and do not provide a federal income tax deduction, but contributions may entitle you to a state income tax deduction (depending on your state and plan).

Review withholding. The IRS cautions that people with more complex tax situations face the possibility of having their income taxes underwithheld due to changes under the Tax Cuts and Jobs Act. Use its withholding calculator (available on the IRS website) to review your situation. If it looks like you could face underpayment penalties, increase withholdings from your or your spouse’s wages for the remainder of the year. (Withholdings, unlike estimated tax payments, are treated as if they were paid evenly over the year).

For assistance with these and other year-end planning ideas, please contact us.

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