When you watched the New Year’s Eve countdown and raised your glass to 2018, did you make any resolutions to put your finances first this year? Finance-related resolutions are the third most popular New Year’s resolution, following self-improvement and weight loss. (1) Millions of people strive to get out of debt, save more, or reach a financial milestone, whether that’s purchasing a vacation home or retiring. If you fall into this camp, how did you do? Did your resolution fall to the wayside as many do?
The good news is that it’s not too late to make some headway on your 2018 goals, but you need to start now. With Christmas just around the corner, take some time to get a jump-start on these 5 financial actions before 2019 arrives.
1. Be Proactive With Your Taxes
Once January arrives, tax season is in full force. Get a leg up on tax season now and save yourself some future headaches by doing these two things:
Make Deductions Work For You
Maximizing your retirement savings is an ideal way to save on your taxes as well as increase your nest egg. If your employer offers a 401(k), you can contribute up to $18,500 in 2018. If you are over 50, you can also take advantage of catch-up contributions of an additional $6,000. If you don’t have the opportunity to save through an employer-sponsored plan, you can still invest in an IRA or a Roth IRA. IRA contribution limits for 2018 are $5,500 per person, with an additional $1,000 for those over age 50. Keep in mind that if your income is over $199,000 and you’re married filing jointly, you won’t be eligible to contribute to a Roth IRA.
Contributions to health savings accounts (HSAs) are also an excellent vehicle for reducing your total taxable income. The 2018 contribution limits for HSAs are $3,450 for an individual or $6,900 for a family. You can also make a $1,000 catch-up contribution if you are over age 55. For the 2019 tax year, you have until April 15th to contribute to HSAs and retirement funds to benefit from this deduction, but don’t put this action off until it’s too late. Take care of it now and you’ll have less to think about when it’s crunch time.
Some additional deductions that may apply to you are state sales tax on major purchases, student loan interest, and medical and dental expenses.
Organize Your Paperwork
This is a crucial step to ensure a smooth filing experience. Gather records and account for all income, most commonly in the form of a W-2 or 1099. Your employer is responsible for getting these documents to you by January 31st, but even if you don’t have these documents yet, there are others you can start organizing now:
- Records of charitable contributions over $250
- Information from prior years’ tax returns
- Rental income
- Mortgage interest and property taxes paid
- Dividend income
Roberts CPA offers comprehensive tax, accounting, and financial services to fully integrate your many needs into a cohesive strategy. The result is greater financial organization and less stress.
2. Use Your Employee Benefits
While every employer has different rules for the benefits they offer to their employees, many benefits expire or reset at the end of the year. You work hard for these perks, so be sure to use them up!
Medical And Dental Benefits
Did you have good intentions of taking care of some dental work, blood tests, or other medical procedures in 2018? Now’s the time to take advantage of all your healthcare needs before your deductible resets. Dental plans in particular often have a maximum coverage amount. If you haven’t used up the full amount and anticipate any treatments, make an appointment before December 31st.
Flexible Spending Account
Like your health insurance benefits, you’ll want to use up your FSA (Flexible Spending Account) dollars by the end of the year. Your benefits won’t carry over, and you’ll lose any unspent money in your account. Check the restrictions for your account to see what the money can and cannot be used for.
Sick And Vacation Time
Depending on your company, your sick or vacation time might expire at the end of the year. Check with your HR department to learn about any expiration dates. If your sick or vacation time does expire, fit in a last-minute vacation, a staycation, or trips to the doctor to use up these benefits.
3. Double-Check RMDs
If you’re retired, review your retirement accounts’ required minimum distributions (RMDs). An RMD is the annual payout savers must take from their retirement accounts, including 401(k)s, SIMPLE IRAs, SEP IRAs, and traditional IRAs, when they turn 70½. If you don’t, you may face the steep penalty of 50% of the distribution you should have taken. If you don’t need your RMD money to live on, consider donating the funds to a worthy cause, which could also lessen your tax burden for the year. To calculate your RMD, use one of the IRS worksheets.
4. Review Your Gifting And Estate Plans
If you have taken the time and energy to create an estate plan, you’ll want to check in periodically to ensure all the documents are up to date and no major details have changed. Any significant life event is a good time to think about updating your estate plan documents. If you change any of the beneficiaries in one place, such as a life insurance policy, make sure that they are consistent with the other documents so that there is no confusion.
If gifting is one of your long-term financial goals, it’s never too early to start planning for the legacy you want to leave your loved ones without sharing a good portion of it with Uncle Sam.
Each year you can gift up to $15,000 to as many people as you wish without those gifts counting against your lifetime exemption of $5.6 million. If you’ve yet to gift this year or haven’t reached $15,000, consider gifting to your children or grandchildren by December 31st.
If you made a charitable contribution in 2018, you might be able to lower your total tax bill when you file early next year. It can be especially advantageous if you donated appreciated securities to avoid paying taxes on the gains. Along with your other tax documents, find and organize any receipts you have from your donations to charities, whether it was a cash, securities contribution, or another type of gift.
5. Update Your Insurance Policies
A lot can happen in a year. As you experience life changes, from the birth of a child to marriage to a new career, it’s important to regularly review your insurance coverages and your designated beneficiaries. Now is the ideal time to review your current insurance policies and make sure they are up to date. You might also want to evaluate your need for other types of insurance you may not currently have, such as long-term care insurance.
Get Started Now!
Do you need to take any of these steps before the ball drops on New Year’s Eve? The Roberts CPA team would love to help you finish the year off strong and set you up for a successful 2019. Send me an email at kevin@roberts-cpa.com or call my office at (502) 426-0000 or schedule an appointment with me online!
About Kevin
Kevin Roberts is a CPA and CFP® specializing in providing virtual CFO services to individuals, families, small businesses, and professionals in the medical, professional service, and restaurant industries. He has more than 20 years of experience in accounting and taxes, and more than seven years in the financial services industry. Regardless of the services he provides, Kevin strives to offer clients confidence knowing that their financial aspects are being addressed and monitored by professional and competent individuals. Based in Louisville, he works with individuals, families, and businesses throughout Kentucky. Learn more by connecting with Kevin on LinkedIn or emailing kevin@roberts-cpa.com.
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(1) http://www.statisticbrain.com/new-years-resolution-statistics/