And the new, lower tax rates are in full effect. If the 2019 filing season were a reality show, no doubt it would be the most dramatic season yet.
But with 2018 quickly drawing to a close, now is the time to look for last-minute tax-saving moves and tamp down your tax tab for the year. With tax reform in place, this year’s tax-trimming moves may be quite different from moves you made in the past. “One of the old tried-and-true methods was to bunch deductions,” says Bill Smith, managing director for CBIZ MHM’s national tax office. You may “still want to accelerate deductions, but not many are left.”
Here are some last-minute moves to consider as you try to outwit Uncle Sam and hold on to as much of your cash as you can.
To assess where you stand with Uncle Sam, estimate your 2018 tax burden. Tally up your taxable income streams, and estimate the amount of taxable income you expect for the rest of the year. Up to 85% of Social Security benefits are taxable, for instance. Retirement account distributions and income from pensions and annuities are generally taxable, too. (If your income is hefty, consider whether any of it can be pushed off to a future tax year.)
Then consider what tax breaks you expect to use and how they affect your income tax bracket and estimated tax bill.
Run the numbers using the standard deduction and by itemizing deductions to see which route saves you more money. Your most effective tax-saving moves may depend on the route you plan to take. The hurdle is higher to itemize this year because the standard deduction nearly doubled, to $12,000 for single filers and $24,000 for married couples filing jointly. Taxpayers age 65 and older get a higher deduction—joint filers add $1,300 per spouse and single filers add $1,600.
The closer it is to the end of the year, the more precise your estimate will be. But some tax-saving moves may take a little time to execute, so don’t procrastinate on projecting your tax burden.
Next, estimate any withholding you’ve requested through year-end, and add it to the tax you’ve already paid for 2018. Depending on how that figure matches up to your expected tax burden, you may need to adjust either your withholding or estimated tax payments. By year-end, your remaining tax burden should be less than $1,000 to avoid an unnecessary underpayment penalty.
Identify Your Bracket
Here are the new 2018 marginal tax rates and corresponding taxable income ranges for married taxpayers filing jointly:
- 10%: $0-$19,050
- 12%: $19,051-$77,400
- 22%: $77,401-$165,000
- 24%: $165,001-$315,000
- 32%: $315,001-$400,000
- 35%: $400,001-$600,000
- 37%: Over $600,000
And here are the new 2018 tax brackets for single taxpayers:
- 10%: $0-$9,525
- 12%: $9,526-$38,700
- 22%: $38,701-$82,500
- 24%: $82,501-$157,500
- 32%: $$157,501-$200,000
- 35%: $200,001-$500,000
- 37%: Over $500,000
Turbo Charge Your Retirement Savings
Maxing out savings can lower your taxable income. If you’re still working, stash as much as you can in tax-advantaged retirement accounts. Those who are 50 and older can put up to $6,500 into a traditional IRA for 2018. A working spouse can contribute the same amount to a spousal IRA for a nonworking spouse, as long as the worker’s earnings cover the total contributions. (Workers age 70½ or older can’t contribute to a traditional IRA, but they can still stash money in a Roth IRA.)
If you are contributing to an IRA for a tax deduction, you’ll need to determine how much of your contributions are deductible. But the good news is that deductible contributions can trim your tax bill whether you itemize or not. And if you need a super last-minute tax saver, you can contribute to an IRA for 2018 up until the tax-filing deadline, which is April 15, 2019.
Workers can stash much more in a traditional 401(k)—up to $24,500 for those 50 or older—but contributions must be made by the end of the year. The more a worker can put in, the lower his or her taxable income will be. There’s no age cap, so older workers can choose to max out their contribution.
If you contribute to a health savings account, maxing out contributions to that tax-advantaged account can lower your taxable income. In 2018, taxpayers can make tax-deductible HSA contributions of up to $3,450 for single coverage and up to $6,900 for family coverage.