Top Strategies for Effective Tax Planning in 2018
Learn five essential tax planning tips for 2018 to maximize savings and minimize liabilities. From organizing records to understanding state tax changes, leverage these strategies to optimize your financial year. Discover how capital losses, Roth IRAs, and refund strategies can benefit your tax planning. Stay ahead of tax reforms and make informed decisions that can save you money this year.
Proper tax planning is essential to optimize your finances for 2018. Being proactive helps ensure you make informed financial decisions and maximize benefits from recent federal tax reforms. Since the new tax laws can result in diverse impacts—some paying more, others less—it's crucial to stay ahead. Here are five vital tips to help you navigate tax planning effectively this year.
Maintain Organized Records
Start by gathering all necessary documents like statements and receipts. Establish a systematic record-keeping approach to reduce stress during tax season. Store copies of your returns safely, and consider backing up data on external drives to prevent loss due to theft or hacking. Keep documents related to property and investments for longer periods, especially if they haven't been sold.
Monitor State Tax Changes
Federal tax reform influences state-level taxes, as many states align their codes with federal regulations. With adjustments like lowered federal tax rates and eliminated deductions, states such as Illinois, Georgia, Michigan, Minnesota, Arizona, Nebraska, Colorado, New York, and Maryland are anticipated to modify their tax policies accordingly. Staying informed about these changes helps in effective tax planning for 2018.
Utilize Capital Losses
Given market fluctuations in 2018, consider harvesting losses from underperforming stocks. Such realized losses can offset gains for tax purposes, with up to $3,000 deductible against ordinary income annually. Excess losses can be carried forward to future years, reducing tax liabilities and optimizing your investment strategy.
Explore Roth IRAs
Contributions and withdrawals from Roth IRAs remain tax-free, making them a smart choice for 2018 planning. Converting traditional IRA funds to Roth may incur taxes now due to market conditions and recent rate reductions. Using non-IRA funds for conversions can minimize tax burdens, especially as the market dips and rates are lower post-reform.
Create a Tax Refund Strategy
While refunds can provide a financial boost, over-reliance on them may lead to reduced withholding and lower refunds next year. Instead, consider alternative savings or investment plans to manage extra cash efficiently. Remember, refunds represent money you've overpaid, which could have been earning interest elsewhere if managed proactively.
