There are many things you can do to reduce your tax liability each year—making charitable contributions, taking certain business deductions, and so on. But most of those opportunities for your 2018 return ended on December 31st, and the vast majority of deductions have expired. However, there are still a few last-minute tax moves you can make that can impact your 2018 tax return and even reduce your tax liability for the previous year. Here are five things you should think about doing if you’re looking to make some last-minute changes to your return.
Retirement Account Contributions
One of the easiest ways individuals can reduce their tax liability at the last minute is to make contributions to individual retirement accounts. The IRS accepts deductions for the previous year on retirement account contributions made before April 15th, so you may still have time to make your contributions and reduce your taxable income. IRAs are one of the simplest ways to utilize this last-minute deduction, so if you haven’t maxed yours out for 2018, look into making some contributions before you file your return.
Getting in the Opportunity Zone
As a job-creating incentive, the Tax Cuts and Jobs ACT (TCJA) set up over 8,700 “opportunity zones” around the country. These zones are low-income areas where the government is hoping to encourage growth and job opportunities. In an effort to encourage people to invest in these areas, businesses and individuals who invest in these opportunity zones can defer or even entirely avoid taxes on their capital gains from other investments.
For example, let’s say you’ve earned $50,000 in capital gains on a stock portfolio that is worth $100,000. Based on your income level, the taxes on those gains might be as much as $10,000. However, if you sell your stock portfolio and push those gains into a qualified opportunity fund, you can defer paying those taxes until you sell the new investment, or until 2026. If you hold the investment for a minimum of five years, the amount of taxable gain is reduced; the longer you hold the investment in the opportunity zone, the lower your taxable gains will be.
As long as you invest in an opportunity zone within six months of selling a previous investment or asset, there is no limit to the amount you can invest in these areas. So, if you sold an investment in the last six months, and you’re looking to reduce your taxable income from 2018, you may still have time to invest in one of these opportunity zones.
Most of these qualifying opportunity funds are in local real estate projects and businesses, and the rules surrounding this tax benefit are very complex. We strongly encourage you to contact our Provo business tax preparers for assistance if you hope to claim this deduction.
Switch from Accrual to Cash Accounting
For self-employed individuals or business owners, changing your accounting method is a quick way to save on taxes at the last minute. You can switch your business’s accounting method at any time, regardless of the method you used the previous year. If you switch from an accrual-based accounting method (reporting income when it’s earned) to a cash-based accounting method (reporting the income when you’re actually paid), this can reduce your taxable income the previous year. Depending on the timing of certain transactions for your business, this can save you quite a bit in taxes for 2018.
The Qualified Business Deduction
This is a new deduction introduced by the TCJA, and while it’s not really a last-minute move you can make, it is important to remember to take this deduction before you file your taxes. Overlooking it can cost you quite a bit on your 2018 return. For sole proprietors and business owners who have an income of less than $315,000, you can deduct a full 20% of your income on your return before you itemize other deductions. Any income of $315,000 can be deducted at a steadily decreasing rate, until the deduction phases out for income over $415,000.
Planning for Next Year
Finally, the best move you can make for your tax return is to start planning for it early. While this doesn’t impact your 2018 return, starting to take the right steps now can help save you a lot of time, stress, and money when it’s time to file for the 2019 tax year. One important thing to do now is to review your withholdings and make any needed adjustments; with the changes introduced by the TCJA, many taxpayers will need to adjust their withholdings to avoid any nasty surprises on future tax returns.
If you have questions about last-minute things you can do to impact your tax return, or you’re ready to start planning for 2019, contact Biesinger & Kofford CPAs. Our Provo business tax preparers can assist you in any tax-related matters.