End of the Year Money Moves

By Dave Rao
Tuesday, December 25, 2018

Here are some things you might want to do before saying goodbye to 2018.

What has changed for you in 2018? Did you start a new job, leave a job behind or retire? Did you start a family? Review your finances before 2019 if notable changes occurred. Even if your year has been relatively uneventful, the end of the year is a good time to assess where you can save on taxes or build more wealth.

Do you practice tax-loss harvesting? That is the art of taking capital losses to offset your short-term capital gains. This move directly lowers your taxable income.

You could take it a step further by considering that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income and any remaining capital losses above that can be carried forward to offset capital gains in upcoming years.

Do you want to itemize deductions? You may want to take the standard deduction for 2018, which has ballooned to $12,000 for single filers and $24,000 for joint filers. But if you itemize, now is a good time to get receipts and assorted paperwork together. While many miscellaneous deductions have disappeared, some key deductions are still around, including those for state and local taxes (SALT), mortgage interest, charitable contributions and medical expenses.

Could you ramp up 401(k) or 403(b) contributions? Contribution to these retirement plans lower your yearly gross income. If you lower your gross income enough, you might be able to qualify for other tax credits or breaks available to those under certain income limits.

Are you thinking of gifting? How about donating to a qualified charity or nonprofit organization before 2018 ends? In most cases, these gifts are partly tax-deductible.


Dave Rao

If you donate publicly traded shares you have owned for at least a year, you can take a charitable deduction for their fair market value and forgo the capital gains tax hit that would result from their sale. If you pour some money into a 529 college savings plan on behalf of a child in 2018, depending on the state, you may be able to claim a full or partial state income tax deduction.

You can also reduce the value of your taxable estate with a gift or two. The federal gift tax exclusion is $15,000 for 2018. So, as an individual, you can gift up to $15,000 (a married couple $30,000) to as many people as you wish this year.

Why not take a moment to review the beneficiary designations for your IRA, life insurance policy and workplace retirement plan? Lastly, look at your will to see that it remains valid and up to date.

Should you convert all or part of a traditional IRA into a Roth IRA? You will be withdrawing money from that traditional IRA someday, and those withdrawals will equal taxable income. Withdrawals from a Roth IRA you own are not taxed during your lifetime, assuming you follow the rules. Translation: tax savings tomorrow. A Roth IRA conversion can no longer be recharacterized (reversed).

Can you take advantage of the American Opportunity Tax Credit (AOTC)? The AOTC allows individuals whose modified adjusted gross income (MAGI) is $80,000 or less (and joint filers with MAGI of $160,000 or less) a chance to claim a credit of up to $2,500 for qualified college expenses. Phase-outs kick in above those MAGI levels.

See that you have withheld the right amount. The Tax Cuts and Jobs Act lowered federal income tax rates and altered withholding tables. If you discover that you have withheld too little on your W-4 form, you may need to adjust your withholding before the year ends.

What can you do before ringing in the New Year? Speak with a financial or tax professional now, and little year-end moves might help you improve your short-term and long-term financial situation.


Dave B. Rao is the founder of RAO Wealth Partners. He focuses his practice on helping to advise physicians, corporate executives and business owners on their unique financial situations. For more information, visit raowp.com.