5 Annual Tax Essentials

The more things change the more they stay the same. This is especially true when it comes to reviewing your tax situation. Mark your calendar to review these essential items each year to ensure you are not missing something that could cause tax trouble when you file your tax return:

Alarm clock, calendar, and 1040 form

  1. Required minimum distributions
    If you are 70½ or older, you may need to take required minimum distributions (RMDs) from your retirement accounts. RMDs need to be completed by Dec. 31 every year after you turn the required age. Don’t forget to make all RMDs because the fines are extremely hefty if you don’t – 50 percent of the amount you should have withdrawn.
  2. Your IRS PIN
    If you are a victim of IRS identity theft you will be mailed a one-time use personal identification number (PIN) as added security. You can expect to receive your PIN in the mail sometime in December. Save the PIN as it is required to file your Form 1040. If you would like to sign up for the PIN program, you can do so on the IRS website. Note that once you are enrolled in the program, there is no opt out. A PIN will be required for all future filings with the IRS.
  3. Retirement Contributions
    You may wish to make some last-minute contributions to qualified retirement accounts like an IRA. This can be $5,500 for traditional or Roth IRAs plus an additional $1,000 if you are 50 or older. Contributions to traditional IRAs need to happen by April 15, 2019 to be deducted on your 2018 tax return.
  4. Harvest Gains and Losses
    Profits and losses on investments have their own tax rates from 0 percent to as high as 37 percent. Knowing this, make plans to conduct an annual tax review of investment moves you wish to make. This includes:

    • Understanding investments held longer than one year have lower tax rates as long-term capital gains.
    • Trying to net ordinary income tax investment sales with long-term investment losses.
    • Making full use of the annual $3,000 loss limit on investment sales

    Timing matters with investment sales and income taxes, so having a year-end strategy can help lower your tax bill.

  5. Last-Minute Tax Moves
    While your last-minute tax move opportunities may be limited, here are a few ideas worth considering:

    • Make donations to your favorite charities to maximize your itemized deductions.
    • Consider contributions of up to $100,000 from retirement accounts to qualified charities if you are older than 70½.
    • Make tax efficient withdrawals from retirement accounts if you are over 59½.
    • Delay receipt of income or accelerate expenses if you are a small business.
    • Take advantage of the annual $15,000 gift-giving limit.

Understanding your current situation and having a plan will make for a smooth tax filing process and maximize your tax savings.