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PILLA TALKS TAXES - Featured Article
_________________________________________ 

YEAR END TAX PLANNING

9 SImple Steps to That Can Cut Taxes and Pain 

by Daniel J Pilla 

 

 

With the end of the year fast approaching, you’re probably wondering what you should be doing to cut your taxes. Remember: if you wait until April to start thinking about this, it’s just too late. Here are some ideas to get you moving in the right direction now. 

 

1. Consider paying state income taxes before December 31.  

Many people wait until April 15 to pay their state income taxes, since that’s when they file their state tax returns. However, if you pay your state income taxes in 2019, you can’t claim the deduction for those taxes until you file your 2019 tax return. That doesn’t happen until April 2020. Thus, you have to wait an entire year before getting the tax benefit of the expense. 

By paying your state taxes now, you get a deduction for those taxes in 2018. That means you get the benefit of the expense more than one year sooner than you’d otherwise realize.  

Keep in mind, however, that the standard deduction for 2018 is double what it was in 2017, thanks to the Tax Cuts and Jobs Act. That means you may get a larger tax benefit by not itemizing, depending on your situation. It is also true that there is a $10,000 cap on what you can deduct for state and local taxes in 2018 and beyond. Thus, if you are already at the cap for 2018, it won’t help to pay more state taxes this year. You have to look at your situation carefully.  

2. Review your wage withholding or estimated payments. 

About 85% of all taxpayers get a tax refund when they file their tax returns. The average refund is nearly $3,000. If you get a tax refund, it doesn’t mean the government got religion and decided to give you free money. It means you paid more taxes than you owe. If you got a refund in 2018 for 2017, you need to examine your withholding situation going into 2019 to make sure you don’t overpay.   

Whether you’re an employee or you make quarterly estimated tax payments as a self-employed person, sit down now and do some preliminary calculations on your tax liability. Figure out if you’ve overpaid. If so, you need to adjust Form W-4 (for wage earners) or your estimated tax payment pattern (for self-employed people). 

Keep in mind that no law requires you to pay more taxes than you owe. For withholding purposes, you avoid under-withholding penalties if you pay either 100 of last year’s tax (2017) or 90 percent of this year’s tax (2018), whichever is less. Use that yardstick to guide you in adjusting your withholding.   

3. Count your money now. 

Each year, millions of people are blindsided come April 15 with surprise tax liabilities they can’t pay. Don’t wait until March or April to start figuring your tax, especially if 2018 was a particularly good year for you. On the other hand, the Jobs Act will cut taxes for about 80% of all taxpayers. And if you own a small business such as a sole proprietorship or S corporation, you will get the benefit of the 20% deduction under §199A. That will reduce taxes considerably for most small business owners.   

It is important for you sit down now and examine your 2018 financial situation. If there were substantial changes to your economic condition in 2018, they may have the impact of increasing your tax burden. If you don’t have the money to cover the tax, you’ll wind up as one of the millions of taxpayers facing enforced tax collection actions.  

Make sure you have a good handle on what you’re going to owe. If you figure it out now, you have four and a half months to put together a plan to pay the tax. If you don’t, you could be hit over the head in April. In my experience, it’s that kind of shock that causes people to start making critical mistakes in how they handle their tax burdens. Often, it leads to years of hassle and harassment from the IRS.  

4. Review your financial portfolio. 

One of the biggest problems with our tax system is the unfair treatment it affords to investment gains and losses. If you win with your investment, the IRS is standing next to you with its hand out to get “its share” of your success. If you lose, you are, for the most part, standing alone.   

The reason is that capital gains are subject to tax in their entirety in the year they are realized. However, capital losses are subject to a $3,000 deduction cap in a given year. That means if you lose $15,000 in an investment, you can only deduct $3,000 at time. This means it will take you five years to fully write off your loss. 

This is true unless you have both capital gains and capital losses in the same year. If that’s that case, you offset your gains against your losses, plus you can take an extra $3,000 of loss. Suppose you have $10,000 of capital gains and $12,000 of losses. In that case, the first $10,000 of losses offset against the gains. Then, you get the additional $2,000 of losses as a deduction that can offset other income.   

In order to best utilize this rule, you should consider selling investments that are down in 2018 so you can offset that loss against any investments that made money during 2018. This allows you to effectively increase the allowable capital loss deduction, thereby recovering your losses much faster than you otherwise would. You should talk with your investment advisor regarding this strategy.  

 

Other Steps
  
 (full details are found in the December 2018 issue of Pilla Talks Taxes) 

 

5. Consider making equipment purchases 

6. Fund a Medical Savings or Health Savings Account. 

7. Fund a retirement account. 

8. Consider restructuring your business. 

9. Catch up on your charitable contributions.  

 

How to Get More Help  

If you need more help with end-of-the-year tax planning, you must consult one of the professional members of my Tax Freedom Institute. Click here for a list ofthe current consulting members. Don’t wait to take this action. If you do, you’ll lose most of your opportunity to cut your taxes for 2018.  

 

This is a portion of an article from the December 2018 issue of Pilla Talks Taxes Newsletter. Subscribers to Pilla Talks Taxes are able to read the full article and rest of the newsletter when they log into their subscription account on their non mobile device. http://taxhelponline.com/subscriber-login.html 

      

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Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

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 2018 YEAR END SPECIAL

$10 off 1 year subscription with code MERRY2018
Hurry – Expires 12/31/18  

 

ARTICLES FOUND IN THE LATEST 

PILLA TALKS TAXES ISSUE:

 

 

October November Issue:

THE FUTURE OF SALES TAX ENFORCEMENT
UNDER WAYFAIR  

The Begining of a New Wave of Enforcement Nightmares

WELL WHADYA KNOW:

FEDERAL REVENUE IS UP  

by Dr Merrill Matthews

 

December issue:

END OF YEAR TAX PLANNING

 9 Simple Steps that Can Cut Taxes and Pain

 

 WILL CONGRESS EXPAND

MEDICAL SAVINGS ACCOUNTS?

 Trump Plan Calls For Increasing “Choice”

 

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

 

AVOIDING PENALTIES UNDER OBAMACARE

 



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