Tis’ the season to be jolly. Fa la la la la, la la la la la la. Hope you don’t have a year-end tax folly. Ha ha ha ha ha, ha ha ha ha ha ha.
No really. I hope no one has a folly. Here is why.
It’s Already Year-End?!
I get paid twice a month for my “real” job. On the 15th and the last day of the month. If either day falls on a weekend or holiday, then the paycheck comes the prior business day.
So my latest paycheck came on Friday. At the top of each check, I’m able to see both my gross and net earnings year-to-date. Quickly reviewing the last pay stub, I realized we only receive one more check in 2018. Damn, the year went fast.
In addition to realizing a single pay period remained for the year, I thought about any last-minute actions I might need to do before year-end.
You might be kind of screwed if you waited all year to consider any changes to your 2018 tax situation. However, whether adjusting your withholding, contributing to an IRA or 401(k), or making other considerations, there still might be time to act.
Either way, use the lessons learned of 2018 to plan ahead for 2019. It’s also useful to recall what changed this year.
Recap of 2018 Tax Year Changes
The US legislation signed nearly year ago brought arguably the largest and most significant overhaul of the US tax code in decades. Here are some highlights of the tax changes that went into effect for the 2018 tax year.
Tax Rates & Brackets
The number of individual brackets ended up remaining at 7, yet with decreased tax rates at the top and in between.
The highest tax bracket fell from 39.6 percent to 37 percent (the lowest bracket remained static at 10 percent). Here is what remained:
Changes to individual rates expire in 2025; business/corporate rates, which decreased from 35 percent to 21 percent, do not expire.
Deductions and AMT
The Standard Deduction roughly doubled (depending on respective filing status and other circumstances); raised to 20 percent for pass-through businesses.
The Individual Alternate Minimum Tax (AMT) remained — with increased exemptions but reverts back eventually to current levels; eliminated the he business/corporate AMT.
However, don’t forget about your state:
Eliminated personal exemptions; student loan interest deduction remained; child tax credit received some increases.
Individual state and local tax deduction capped at $10,000 (combination of property taxes and sales or income taxes). This is, generally, impacting tax payers in blue states; however, others are impacted as well.
A Few Other Items
The Mortgage interest deduction capped at loans of $750,000 for eligible purchases.
The Estate Tax exemption doubled.
Affordable Care Act, or Obamacare, individual mandate penalties eliminated.
Considerations for the Remainder of the Year
Here are some key factors worth assessing:
(1) Your Income
How much or how little you earn regardless of method (e.g., W2, dividends, long/short-term capital gains) is likely the first item that comes to mind.
Continue to be mindful of how your income is recognized or categorized for tax purposes. The rates can vary significantly.
(2) Your Asset Allocation
Again, different types of assets get treated differently for tax purposes, but also be mindful of the placement of assets in different account types.
Related: 5 Ways to Balance Account Types To Balance Life’s (Un)known Milestones
(3) Your Timeline
With some of the tax reductions set to expire, while others are permanent, don’t forget to consider your respective timeline.
Assess both short- and long-term plans.
(4) Your Personal Status
While related the three items above, this can include your housing situation, where you live, if you’re single or married, if you have dependents, etc.
Understand what is unique and important to you.
Looking Back and – More Importantly – Ahead
2018 is almost over. You might or might not be able change something to impact your 2018 tax situation.
Regardless, at minimum, use the last couple of weeks remaining in the year to set yourself up for success in 2019.
Readers, are you considering any last-minute moves to alter your 2018 tax status? What are you reviewing for 2019?
Related:
Tax Reform & Your PFUI: Applying the 10 Heuristics
3 Lessons Why “Assumption Is The Mother of All F*ck Ups”
15 Years Later: 5 Things I Wish I Knew Sooner
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Nice recap, but how about an article in ’19 on healthcare affordability and possible options the idiots in Washington could consider? (Congress, president,democrat or republican included)
Thank you for the comments!
I actually have a post in the queue regarding insurance, in general. However, I don’t really dive-into politics, etc. – Mike