Broker Check

Financial Moves that may help lessen your Tax Burden

November 29, 2018

As we approach the end of 2018, it’s a good time to start thinking about financial moves that may help lessen your tax burden.

New Rules This year

⦁ Increased standard deductions 2018: The standard deduction has nearly doubled to $12,000 for an individual and $24,000 for a family. This impacts people that have itemized their deductions in the past. Historically, about 30% of tax payers itemized deductions. This is expected to drop to 10% with the new tax law.

⦁ SALT Cap – There is a new cap on state and local taxes of $10,000 that may be deducted from your Federal tax return. Any property tax paid or state income tax paid in excess of $10,000 is no longer deductible on your Federal tax return.

⦁ Mortgage Interest Cap – deductions on mortgage interest on the portion of a loan greater than $500k is no longer deductible.

⦁ Bunching Charitable Contributions – If you are close to the standard deductions level, consider combining two years of charitable giving into one year in order to get you over the standard deduction level.
Tried and True Methods of Reducing Tax liability

⦁ Tax loss harvesting – if you have gains in your portfolio, look for losses that you can take to offset those gains in order to lessen your realized capital gains. If you have more losses than gains, you can apply up to $3,000 of the loss to reduce your ordinary income. Any losses above $3,000 can be carried over to the next year.

⦁ 0% federal tax for long-term capital gains for low income earners - If you have income less than $38,600 for individuals and $77,200 if married, the federal tax rate on long-term capital gains is 0%. If you are a recent college grad and new to the labor force, or if you have been in a job transition over the last year and you’re below these income levels consider selling a long-term winner to take advantage of the 0% federal tax. You can buy the stock back right away (no 30 day rule on this) and essentially re-set your cost basis.

⦁ Mutual fund capital gains distribution – Mutual funds are required to pay out to their shareholders any gains from the sale of stocks or bonds in their fund. Often times these payments don’t occur until the close to the end of the year and investors forget to plan accordingly. CapGainsValet ( ) is a good source of information to get estimates for mutual fund capital gains distributions

⦁ Retirement and health savings plans – 401k, IRA, health savings account, flex spending, SEP, etc.…. Max them out if you can. This is will reduce your adjusted gross income.

⦁ Required minimum distributions (RMD) transfer to a charity– If you are over 70 ½ years old, you are required to take a distribution from your retirement plans. This distribution adds to your income and is taxed at your current rate. If you give money to charities over the year, consider transferring your required minimum distribution to the charity directly. This will meet your RMD obligation but will not add to your taxable income.

⦁ Tax credits – Look into any tax credits that you qualify for. Popular tax credits are the Lifetime Learning Credit and the American Opportunity Tax Credit (both for education), Earned Income Tax Credit, and Child and Dependent Care Tax credit. Be sure to ask your accountant which credits you qualify to take.

As always, Chatham Wealth Management can help with issues as well as all of your investment management and financial planning needs. Visit our website at or call us at (800)472-8086. Come in for a complimentary portfolio and retirement planning review.