Contribute into a retirement plan

If you haven’t already funded your retirement account for 2017, do so by April 15, 2018. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2018, you can wait until then to put 2017 contributions into those accounts.

Making a deductible contribution will help you lower your tax bill this year. Plus, your contributions will compound tax-deferred. It’s difficult to find a better deal. If you put away $5,000 a year for 20 years in an investment with an average annual 8 percent return, your $100,000 in contributions will grow to $247,000. The same investment in a taxable account would grow to only about $194,000 if you’re in the 25 percent federal tax bracket.

To qualify for the full annual IRA deduction in 2017, you must either: 1) not be eligible to participate in a company retirement plan, or 2) if you are eligible, you must have adjusted gross income of $59,000 or less for singles, or $99,000 or less for married couples filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $186,000.

For 2017, the maximum IRA contribution you can make is $5,500 ($6,500 if you are age 50 or older by the end of the year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2017 is $54,000.

Although choosing to contribute to a Roth IRA instead of a traditional IRA will not cut your 2017 tax bill, it could be the better choice because all withdrawals from a Roth can be tax-free in retirement. Withdrawals from a traditional IRA are fully taxable in retirement. To contribute the full $5,500 ($6,500 if you are age 50 or older by the end of 2013) to a Roth IRA, you must earn $118,000 or less a year if you are single or $186,000 if you’re married and file a joint return.

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You may qualify for an itemized deduction

It’s easier to take the standard deduction, but you may save a bit if you itemize. It’s worth the bother when your qualified expenses add up to more than the 2018 standard deduction of $12,000 for singles and $24,000 for married couples filing jointly. Many deductions are well known, such as those for mortgage interest and charitable donations. However, starting in 2018 the state and local tax deduction will be limited to $10,000. This amount is not doubled for those filing as married filing jointly. The limit is for your combined state and local income tax amounts paid plus any real estate taxes paid.

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Taking the Home office deduction

The eligibility rules for claiming a home office deduction have been loosened to allow more filers to claim this break. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there. You must use the space exclusively for business.

Many taxpayers have avoided the home office deduction because it has been regarded as a red flag for an audit. If you legitimately qualify for the deduction, however, there should be no problem. However, with the passage of the 2018 tax bill, individuals can only get the deduction if they are in a self-employment situation. The deduction is also allowed under an Accountable Plan for those shareholders of an S-Corporation.

You are entitled to write off expenses that are associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance and housekeeping). The percentage of these costs that is deductible is based on the ratio of the square footage of the office to the total area of the house. A middle-class taxpayer who uses a home office and pays $1,000 a month for a two-bedroom apartment and uses one bedroom exclusively as a home office can easily save $1,000 in taxes a year. People in higher tax brackets with greater expenses can save even more.

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Use the gift tax exclusion to shift income

You can give away $15,000 ($30,000 if joined by a spouse) per donee in 2018, per year without paying federal gift tax. You can give $15,000 to as many donees as you like. The income on these transfers will then be taxed at the donee’s tax rate, which is in many cases lower.

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Invest in treasuries

For high-income taxpayers, who live in high-income-tax states, investing in Treasury bills, bonds, and notes can pay off in tax savings. The interest on Treasuries is exempt from state and local income tax. Also, investing in Treasury bills that mature in the next tax year results in a deferral of the tax until the next year.

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Take advantage of your employer’s benefit plans to get an effective deduction for items such as medical expenses

Medical and dental expenses are generally only deductible to the extent they exceed 7.5% of your adjusted gross income (AGI) for 2017 and 2018 (and then back to 10% thereafter). For most individuals, particularly those with high income, this eliminates the possibility for a deduction. You can effectively get a deduction for these items if your employer offers a Flexible Spending Account, sometimes called a cafeteria plan. These plans permit you to redirect a portion of your salary to pay these types of expenses with pre-tax dollars. Another such arrangement is a Health Savings Account. Ask your employer if they provide either of these plans.

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Give appreciated assets to charity

If you’re planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash prevents your having to pay capital gains tax on the sale, which can result in considerable savings, depending on your tax bracket and the amount of tax that would be due on the sale. Additionally you can obtain a tax deduction for the fair market value of the property.

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Accelerate capital losses and defer capital gains

If you have investments on which you have an accumulated loss, it may be advantageous to sell it prior to year-end. Capital losses are deductible up to the amount of your capital gains plus $3,000. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements). For most capital assets held more than 12 months (long-term capital gains) the maximum capital gains tax is 15 percent, but certain increases to the capital gains tax exists for higher income tax bracket taxpayers (see rates here: However, make sure to consider the investment potential of the asset. It may be wise to hold or sell the asset to maximize the economic gain or minimize the economic loss.

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Keep track of mileage driven for business, medical or charitable purposes

If you drive your car for business, medical or charitable purposes, you may be entitled to a deduction for miles driven. For 2018, it’s 54.5 cents per mile for business, 18 cents for medical and moving purposes, and 14 cents for service for charitable organizations. You need to keep detailed daily records of the mileage driven for these purposes to substantiate the deduction.

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Defer bonuses or other earned income

If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the portion withheld) for another year. If you’re self employed, defer sending invoices or bills to clients or customers until after the new year begins. Here, too, you can defer some of the tax, subject to estimated tax requirements. This may even save taxes if you are in a lower tax bracket in the following year. Note, however, that the amount subject to social security or self-employment tax increases each year.

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Please note the information above is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of the information provided below should not be acted upon without specific professional guidance. Please call us if you have any questions.