December is on its way, and in the blink of an eye, 2018 will be over – as will your opportunity to take advantage of last-minute tax deductions and savings for which your business may qualify. 2018 is unique because some tax laws have changed, which makes it even more important to prepare for filing season before the end of the calendar year.
For some helpful tips, we sat down with CPA and Partner Dan Wicker to talk tax-preparation and year-end planning. For many, end of the year tax planning is stressful at best and downright impossible at worst. Luckily, Wicker provides some helpful insights to make the process less cumbersome.
While waiting until 2019 to tackle your taxes is tempting, this could ultimately result in lost opportunity for savings. Wicker suggests maintaining awareness of what you will owe and what savings or deductions may exist for your practice. It is also important to know how and when to meet the requirements well before it comes time to file, as many deductions must be taken advantage of before the year end.
If you are working with a financial planner, check to see that you’ve hit the goals you set at the beginning of the year, and discuss the best timing for your large equipment purchases. If you’ve had a successful year, buying new equipment before Dec. 31 may provide a nice write-off opportunity to reduce taxes. If your year was a bit leaner than expected, have your financial planning team examine your personal expenses for anything that could be deemed a business deduction or help determine the most efficient way to depreciate equipment.
By taking a look now, you still have time to make adjustments, and your planner can give you the best advice on how to do so.
A FEW RECOMMENDATIONS
As the year winds down, there is still plenty of time to make the most of the year regarding your tax liability. Consider the following tips before wrapping up 2018:
1. Make sure your 401(k) deferrals are on target to meet the maximum limit for the year. This year the limits have increased to $18,500 for those under 50, or $24,500 for those over 50 by the end of the year.
2. If you have business expenses purchased with your personal credit card, don’t forget to reimburse yourself.
3. Talk to your financial planner about your traditional and Roth IRA contributions. 2018 contributions must be made by April 15, 2019.
4. Contribute to your HSA – Make sure to take full advantage of this non-taxed savings by contributing the maximum amount before Dec. 31. If not, you have until April 15, 2019, to fully fund your prior year HSA.
5. If you were affected by a natural disaster, inquire about tax credits with your financial planner.
6. If for one reason or another your taxable income is very low, discuss the possibility of a Roth conversion with your financial planner.
7. If times are good, remember to visit with your financial planner to discuss adding a defined benefit plan to your practice.
8. If you have a gifting strategy in place, remember to meet the goals you established with your financial planner before December 31.
9. While the new 20% pass-through deduction is potentially limited for dental service providers, you may fall into an income that would allow you to take advantage of some or all of the 20% exclusion. See previous blog for opportunities to minimize income.
10. If you perceive yourself more of an aggressive investor, you can consider investing in a charitable conservation easement. 2018 deductions are greater than previous years with no phase-out of charitable contributions.
11. Plan now to limit gross income to under $250,000 if you are retired. This can help minimize the 3.8% Medicare Investment tax.
12. Consider the rental of a second residence for 15 days or less. If you own a second residence the IRS does not include in your income rental of the property at fair market value for less than 15 days. If done properly this could include your business renting your second home.
BIG CHANGES IN 2018
2018 was a year that saw several major changes affecting individuals and businesses and was the first major tax reform legislation in 30 years. Positively, several aspects of the new law are taxpayer friendly. The tax brackets were lowered and widened, which means more of your money is taxed at lower rates.
However, as is the case with most legislation, the new tax bill is a double-edged sword. For individuals living in high-tax states such as California and New York, the limitations on deducting state and local taxes are unfortunate. Careful tax planning with your CWA team will avoid any unpleasant surprises and help you uncover the many other benefits and pitfalls of our new tax code.
WHAT TO EXPECT IN 2019
We don’t anticipate many significant legislative changes during 2019 like we saw in 2018. One thing to watch out for is a delayed start to the actual IRS filing season. The high volume in changes to the Tax Code, along with a shortened cycle and missed deadlines is increasing the risk of a delayed start and will impact those taxpayers that want to file their returns early.
Although no foreseeable changes next year, if there is anything the new bill has taught us, it is that change often happens abruptly and unexpectedly. Therefore, it is always a good idea to discuss your unique situation with your financial planner. Doing so will help you save both time and taxes.
Working with a financial planner throughout the year helps you set goals and stay on track. Wicker notes the importance of reflection, “at the end of the year, we’ll walk through our beginning of the year plan to see what targets we hit and which we can continue working on into the next year.”
Taxes don’t have to be a burden. At CWA, our focus is on-going strategic tax planning. We’ll take the stress of filing off your plate, and you can focus on the work you do best. There is still time to have someone from our team review your unique situation. Contact us today for a complimentary consultation.