SETCO likes to educate our real estate community so that they are aware of what to do before closing on a house. With a new tax law in place, people are doing some things differently this year when it comes to money.
The standard deduction went up this year with it being $18,000 for individuals and $24,000 for married couples. This means that many Americans will not itemize their 2018 tax returns as many usually do. With this in mind, SETCO wants to help our clients focus on things that lower taxable income rather than maximize tax deductions.
A way to do that is by getting the most from investment losses. If any of your losses for this past year are in a taxable account, such as an investment account, bank account, or money market mutual fund, consider selling it to make the most of your losses. These losses can offset other taxable gains you possibly had during the year.
Use this time to increase your retirement savings. Many of the contributions you make to your retirement fund reduce your taxable income. Increase the amount of money that is withheld from your last paychecks of the year to increase the contributions to your employer-sponsored plan before the year ends. For 401(k)s and other employer-sponsored plans, you can fund up to $18,500 a year, if you are 50 or older you can fund up to $24,500.
Another way to lower your taxable income is by maxing out your HSA. If you have a high-deductible health plan and have not fully funded your health savings account (HSA) for this year, doing it before the 2018 tax-filing deadline can lead to a bigger deduction. Individuals can contribute up to $3,450 this year, while families can fund up to $6,900. Funds in these tax-advantaged accounts can roll over indefinitely and are a great way to save for any future medical expenses you may have.
Prepare for the end of 2018 by spending FSA money. These pre-tax dollars have already reduced your taxable income, make the most of them by allocating these funds before the year ends. Money in these types of accounts typically does not roll over to the next year, which is why you need to take advantage of them while you can. Some employers do allow $500 to roll over into the next calendar year, so check with human resources at your job.
If your employer does not allow this, schedule last-minute eye exams, medical check-ups, and flu shots before Dec. 31st.
In addition to all of this, maximize deductions before year-end. If you are on the cusp of itemizing your 2018 tax returns because your total deductions nearly match the standard deductions, there are a few different things you can do.
Medical Treatment - If you spend more than 7.5 percent of your adjusted gross income on medical expenses, you can deduct those costs.
Property Taxes - If you paid less than the $10,000 limit for state and local taxes, prepaying your 2019 property taxes can get you the most from state and local tax deductions, but only if your state allows it.
Mortgage Interest - After the new tax law, the cap on the mortgage interest deduction is $750,000. If you are not close to this cap, pay your January mortgage payment now to increase the amount of interest you paid during the 2018 tax year.
Charitable Donations - If you usually donate to a charity, go ahead and make your 2019 contribution before the year ends. If you put the double donation for 2018 and 2019 into a donor-advised fund, that contribution becomes tax deductible, which means you can take the deduction for 2018.
SETCO wants to help our clients get the most of their money before 2018 ends. Take this advice to reduce your taxable income; you will not regret it.
If you're ready to take the first step towards closing, contact your local SETCO representative today!