Tax Tips

Tax documents are arriving and it’s time to get organized. This is the first year that incorporates changes from the Tax Cuts and Jobs Act passed in December 2017. These are some of the biggest changes to the tax code in 30 years.

Here is an overview of some of the larger changes to the tax code this year, as well as some tips to help successfully navigate the tax season.

What’s new this year?

We’ve posted this year about the tax changes in more depth. Here are some of the changes most likely to impact families we work with:

• New limits on itemized deductions: Between the new limits on itemized deductions and the increased standard deduction, only about 10% of taxpayers are expected to itemize compared with about 33% before the change. For many taxpayers, this change makes tracking home mortgage interest, medical expenses and charitable contributions unnecessary.
• Child Tax Credit: The child tax credit increased from $1,000 to $2,000 for each child under age 17. More significantly, the phaseout for the credit increased from around $110,000 to $400,000 for married households and $200,000 for all others, allowing many more families to claim the credit.
• Qualified business deduction: Small business owners have significant planning opportunities beyond the scope of this piece. If you have your own business – even if it’s contract work on the side – or if you’re an owner in a partnership or S-corporation, be sure to consult with a professional this year.

Information you should know for your tax return

• Qualified charitable distributions: The recent tax law changes to itemized deductions have made qualified charitable distributions (QCDs) a popular strategy for taxpayers who have reached age 70 ½. If you made a QCD, be mindful to report the distribution correctly so that these distributions aren’t included in your taxable income.
• Roth conversions and “backdoor” Roth IRA contributions: Depending on your current income and the retirement accounts you have, Roth conversions or “backdoor” Roth IRA contributions may be a good strategy. With both, you’ll want to be sure they get reported correctly. We’ve often reviewed tax returns that reported these strategies incorrectly, resulting in additional taxes that shouldn’t have been there.
• Tax loss harvesting: Declines in parts of the stock market this year created some opportunities to sell the investment and realize losses for tax purposes. Realized losses can offset an unlimited amount of realized gains. If there are more losses than gains, an additional $3,000 can be realized against remaining income. Any remaining losses at that point will roll forward to future years.

What tax planning opportunities do I still have for 2018?

• Traditional IRAs: You can make up to $5,500, or $6,500 if age 50 or older, in tax-deductible contributions until April 15.
• Business Owner Retirement Plans: Business owners can potentially make large, tax-deductible contributions to a solo 401(k) or SEP-IRA until October 15.
• Health Savings Accounts: If you have an HSA, you may be able to make a deductible contribution until April 15.

The time frame your tax forms should arrive (or should have arrived already)

Most tax forms should arrive by the end of January. As more services are going entirely digital, don’t expect everything you need to arrive in the mail. Here’s a summary of when to expect common forms:

• January 31: Forms reporting wages, pensions, retirement account distributions, Social Security, bank interest and dividends.
• February 15: 1099 Brokerage statements (reporting stock, bond and mutual fund dividends and sales). Please be aware that account custodians may issue corrected 1099s after this deadline if there is a reported change in income, so it’s best to wait until mid-to-late March before filing a return in case you receive a corrected form.
• March to April: Form K-1 reporting partnership or other business or investment income. These forms most commonly arrive in March or April but can technically arrive as late as September.
• May: Form 5498 reporting contributions (including rollovers and conversions) to IRAs. Since you have until April 15 to make a contribution for the year, the form reporting contributions won’t arrive until May. Remember to report any contributions on your tax return.

Other Resources

Check out our guide for reducing your tax bill for a more detailed look at the new tax law changes, as well as strategies to consider for reducing your tax bill.

What’s the bottom line?

Most taxpayers will likely see a slightly lower tax bill this year due to the recent changes. These changes have created significant planning opportunities to review. As always, your advisor is ready to discuss how these apply to you personally.

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IMPORTANT DISCLOSURE: Merriman is not an accounting firm. The firm’s Wealth Advisory team does not provide accounting services.  The client is responsible for determining whether any strategy discussed here is appropriate or suitable for them based on their financial and tax situation.  The client should consult with a financial advisor or accountant regarding their specific financial or tax situation.