Smart End-of-Year Tax Tips: 2018

Dennis G. Murray, MA

Disclosures

October 16, 2018

In This Article

The New Tax Law, and More

Even though there's plenty of time until year end, it's not too early to start thinking about ways to save on taxes next year. Some of the financial moves you make before December 31 can go a long way toward limiting the amount of money you'll fork over come next April.

The Tax Cuts and Jobs Act (TCJA), which was passed into law in late December 2017, has many physicians wondering what effect this sweeping legislation is likely to have on their bottom line. The new law has many revisions, but not everyone will be affected equally. Whereas some people will enjoy lower taxes, others may wind up paying more on their 2018 return.

Without fully knowing how the TCJA will affect you until your final numbers are in for 2018, the best strategy now is to take charge of what you can control—which means finding tax breaks before the end of the year. Here's what our experts recommend that you consider, in five key target areas.

Target 1: Your Family Finances

Some good news emerging from the TCJA involves the revised child tax credit, worth up to $2000 per child. Whereas other family-related credits benefit mostly low-income taxpayers, the full amount of the child tax credit is available for single people making $200,000 or less (adjusted to a maximum of $400,000 for married couples filing jointly). These limits are substantially higher than they were under the old tax code: $75,000 and $110,000, respectively.

Naturally, there are rules associated with the child tax credit. Among them, all of the kids you claim credit for have to be under the age of 17 years as of December 31, with a valid Social Security number for each one. There are other rules as well, including those that apply if the parents are divorced or separated.

The revised child tax credit, it should be noted, eliminates the dependent exemption of previous tax years. But coupled with higher standard deductions under the TCJA, which we'll discuss in the next section, many taxpayers with young kids could do better under the new law than in years past.

Is an HSA Right for You?

Another family-related tax break involves health insurance. Health savings accounts (HSAs) allow you to set aside pretax dollars—$3450 for individuals, $6900 for families—to purchase a high-deductible health plan (HDHP). These limits increase by $1000 if you turn 55 before the end of the year. The Internal Revenue Service (IRS) defines an HDHP as one with a deductible of $1350 or more for an individual, $2700 or higher for a family. You can fund an HSA yourself, or your employer can. If the latter, the contributions won't increase your taxable income but neither can you deduct them on your tax return. In either case, however, distributions from the account that are used to cover qualified medical expenses aren't taxed.

According to Bankrate.com, HSAs, which are offered by many banks and credit unions, can be set up as a plain vanilla savings account or a savings account with an investment option. The main difference between the two is that strict savings accounts are protected by the Federal Deposit Insurance Corporation (FDIC), which will pay up to $250,000 per account if the financial institution in question goes belly up. HSAs with an investment component lose this protection. "Technically, this is correct but probably not an issue," says Robert G. Baldassari, CPA, MST, a principal with Matthews, Carter & Boyce, a tax advisory firm in Fairfax, Virginia. "If the potential rate of return is great, the risk might be worth it."

The nice thing about HSAs, say many financial advisers, is that the unused portion rolls over from year to year, allowing you to choose between using the account for immediate costs (eg, annual deductibles, copayments) or letting the funds accumulate to help cover healthcare expenses later in life or in retirement.

More information on HSAs, including the types of fees and required minimum deposits, can be found at Bankrate.com.

Comments

3090D553-9492-4563-8681-AD288FA52ACE
Comments on Medscape are moderated and should be professional in tone and on topic. You must declare any conflicts of interest related to your comments and responses. Please see our Commenting Guide for further information. We reserve the right to remove posts at our sole discretion.
Post as:

processing....