2017 has ended, and it’s time to launch a new actionable plan to reach 2018 financial goals— strategies for taxes, investments, retirement, and estate planning should be in place long before the fourth quarter of each year. For tax purposes, deadlines for 401(K) contributions, investment write-offs, and charitable contributions is December 31. If by chance, you didn’t take action at the end of the year, there’s still time to maximize your tax return before April 15th. The checklist below outlines last-minute steps you can perform.
Prepare for the Tax Season
Although April 15th seems far away, it’ll be here quicker than you think. Why not prepare now. Organize all your financial papers (Brokerage and Bank Statements, Profit and Loss Statements, Receipts), so you’ll be ready for the dreaded day. If you’re expecting a refund, consider depositing it into an existing or new IRA. If you have Health Savings Plans (HSA), Flexible Spending Accounts (FSA), or Dependent Care FSA, utilized funds before the grace period to maximize your tax return.
- IRA (Traditional and Roth IRA). April 15, 2018, is the deadline for contributions. But why wait until the last minute to contribute. Open a plan now, and when you file your taxes, automatically deposited refunds into your account. Maximum IRA contribution for 2017 is $5,500, but there are income limits. Traditional IRA contributions are pretax, tax-deductible, and taxed when withdrawn from the account. Money to fund a Roth IRA is taxed before it’s deposited. Contributions are not tax deductible but are tax-free when withdrawn.
- Health Savings Account (HSA). The maximum contribution for a family is $6,750 and $3,400 for individuals. Contributing the maximum to your HSA is an excellent means to minimize your tax Contributions are pretax, tax-deductible, and tax-free if used for healthcare purposes (Dentist and Optometrist, or other preventive care needs). If used for non-health related reasons before the age of 65, you pay taxes plus a 20 percent penalty. March 15th is the grace period to use the funds. But you can specify a rollover for the unused portion ($500 is the maximum allowable for carryover).
- Flexible Spending Accounts (FSA). The contribution maximum for an FSA in 2017 is $2600. And similar to HSAs specify unused funds be rolled over to next year. FSA contributions are pretax, tax-free, tax-deductible Use funds to pay health care expenses—copays for medication, eyeglasses, contact lenses, and LASIK eye surgery, and more.
- Dependent care FSA. The maximum contribution for 2017 is $5,000. Contributions are tax-deductible and tax-free when used for childcare expenses (Day Care, Preschool, After-School Programs, and transportation). Again, specify rollover of funds or lose it by the grace period.
Create an Action Plan for 2018
- 401(k). The maximum allowable contribution limit has increased from $18,000 to $18,500 for 2018 for individuals under age 50 and $24,500 for individuals 50 and older. Monies used to fund your 401(k) are pretax, tax-deductible contributions which reduce taxable income and lowers total taxes owed on your income tax return. Withdrawals after retirement are taxed as ordinary income.
- Investment Write-offs. You have until December 31 to write off losses in your diversified investment portfolio. Selling unprofitable position in a taxable account (does not include retirement accounts such as 401(k) or IRA) to offset realized gains, reduces your taxable income. Taxpayers can write-off $3000 losses as a tax deduction for the year. Additional losses must be carried over to a future tax year losses.
- Self-Employed, Independent Contractor, Freelancer. If you’re self-employed, consider opening your own retirement account. Choices range from Individual 401(k), SIMPLE IRA, Traditional and Roth IRAs, SEP IRA, and Personal Defined Benefit Plan. If you’re uncertain, talk to a financial professional.
- Charitable Donations. Charitable giving is an excellent way to give back and lower your tax liabilities. You can maximize tax benefits by donating cash or investment securities, and other valuables to your favorite charity. There are no capital gains taxes on appreciated stock gifted to charities. Gifts can be non-cash assets (clothing, household items, books, jewelry, and more). For tax purposes, donations should be made by December 31 and don’t forget to ask for a receipt.
- Life Insurance. Life Insurance is a critical part of your financial plan. It ensures your family’s security in case of death. Reevaluate and update your policy each year for significant life changes—a new child, marriage, divorce, new job, new home. These may warrant an increase or decrease in coverage. Make sure you’re getting the best premium and not If necessary, purchase more insurance, and don’t forget to reevaluate beneficiary information.
- Estate Planning. As with life insurance, any significant life change warrants a review of your wills and other estate documents.
- Emergency Fund. For special needs and emergencies, try to maintain extra cash, at least three to six months’ worth of expenses in liquid investments— bank account, savings account, CD’s, Treasuries, etc.
When creating your new actionable financial plan, determine which 2017 goals were profitable and unprofitable. Keep goals that worked and discarded ones that didn’t do well. Have a prosperous 2018!