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Top 5 Year End Retirement Tax Planning Tips

By Jack Krumeich-Miller, E.A. | December 22, 2018

As the year comes to a close, there is still a window of time to make your last tax moves to prepare for filing season and get the most from your tax situation.  There are five specific retirement tax planning tips this article will focus on:

  1. Itemizing Deductions has changed for 2018 – The new standard deductions increased because of the Tax Cuts and Jobs Act.  The standard deductions are now $12,000 for single filers and those married filing separately.  $18,000 for Head of Household.  $24,000 for those married filing jointly.  There are also limitations and removal of what could be itemized.  SALT deduction (State and Local Tax) has a limit of $10,000.  Unreimbursed employee expenses and other miscellaneous deductions are not available anymore.  You can still deduct medical expenses that exceed 7.5% of your AGI (adjusted gross income) for 2018 and 10% of your AGI in 2019 and charitable contributions to qualified organizations.  With that in mind, it is harder for these deductible expenses to exceed the standard deductions.  A strategy called “bunching” can be used to bunch unclaimed deductions from prior tax years or future years and deduct them all in one tax year where you know it will be enough to exceed the standard deduction.  Bunching works specifically by paying ahead of time or waiting till the year you want to deduct them to pay them.  If you have a medical expense in 2018, and you wait to pay it until 2019, you can deduct it in 2019.  If you want to make your 2019 charitable contributions in 2018, you can deduct them in 2018.
  2. If you are 70 ½ or older and have RMDs (Required Minimum Distributions) on your traditional IRA, you can reduce or eliminate them by donating a portion of them directly to any qualified charitable organization.  This is called a Qualified Charitable Distribution. (QCD)  The portion of your RMD that is used for the QCD is not included in your income and it is also not included in your itemized deductions.   This can provide nice tax savings. You can also donate more than your RMD this way to charity. In fact, a person is allowed to donate from their IRA as a QCD up to $100,000 annually!
  3. If you have any concerns about not paying enough each quarter in estimated taxes, or didn’t withhold enough in your paychecks, you can take an IRA distribution s to use toward the estimated taxes you will owe in 2018.   This strategy works because any money withheld from an IRA distribution and sent directly to the IRS as a tax withholding is considered received equally throughout the year even though the IRS receives it in one lump-sum. It works by requesting a distribution for the amount you think you need to pay in estimated taxes for 2018 and have your IRA custodian send 100% of the distribution to the IRS as a tax withholding.  This process could eliminate any potential underpayment of estimated tax penalties even if you missed a quarterly payment during the tax year.
  4. If you see yourself in a higher income tax bracket for 2018 than you would be in 2019 because of any year-end bonuses, see if you can postpone the bonus income payout until 2019.  On the flip side, if you see yourself in a lower tax bracket in 2018 than you would be in 2019, it may be beneficial to accelerate your income to be paid out in 2018 where possible.
  5. Start planning for next year’s taxes.  Identify any benefits you may qualify for or that are provided by your employer (401(k), HSA, FSA, etc.) which you can take advantage of to potentially lower your taxable income in 2019.  You can see what tax bracket or tax situation you have for 2018 and decide what actions to take to potentially change your tax situation to be more favorable in 2019.

If you have any questions about these and other tax planning tips and tricks you have read or heard about, contact our office and we are happy to discuss them with you.  There are several changes in how taxes work because of the Tax Changes and Jobs Act, and we can help guide you through them to make sure you have the best tax situation available to you.  And remember, we are continuing to bring on additional clients for tax preparation services so if you would like us to prepare your taxes please let us know!

Tax Document Retention: When the IRS Can Request Documents

By Jack Krumeich-Miller, E.A. | November 21, 2018

When I first began preparing tax returns for friends and family, it was all done on paper.  It was all mailed in.  It was all physically saved in filing cabinets.  And, I was always told I could shred anything after 3 years.  However, that is not exactly true.

Now it can all mostly be done electronically.  Aside from certain forms and IRS and State Department of Revenue notices, I can handle my tax work from my computer.  No more pencils, no more grabbing blank forms from the high school library.

One of the first things I learned when I started doing more tax returns than just friends and family was how important it is to keep every single document or copy of documents that comes my way.  I also began informing my friends and family to keep their documents for at least three years.  I say “at least” 3 years because that is not the only amount of time the IRS can request them or dispute your tax return or tax situation.  They can take action at any time for several different reasons.  If a taxpayer does not have the documents needed to properly respond to the IRS, they can assume they were right and move forward with whatever steps are within their power to collect.

There is a term − statute of limitations − which is the allowance of time given for the IRS to act.  The IRS has three years from the time your return was filed to act against your return for matters related to clarifying discrepancies between what they think you owe and what you claim you owe.  If they suspect tax fraud, the statute of limitations can be six years from the last act committed, not from the period the tax fraud began.  There is no statute of limitations if the IRS suspects you filed a false tax return; you did not file any tax return; or you committed a willful effort to evade paying taxes owed.  And remember, it is not a matter of if you committed any of these offenses, it is a matter of whether or not the IRS suspects you did.

The IRS also has a Whistleblower program where anyone can direct their attention to potential questionable tax activity.  Anyone could feel motivated to call the IRS with any number of accusations and, with their incentives for a successful recovery of taxes owed to them, the IRS will investigate.

Collection of your tax debt involves a separate statute of limitations.  Currently, that limitation is 10 years from the date of the last assessment of tax debt.  If you owe one year, and then seven years later, owe an additional amount from another tax event, they start the collection clock over from the most recent debt assessed.  If you file bankruptcy or begin the process of applying for a payment plan, or any number of events that put a pause to the IRS collection efforts, it pauses the clock on the 10-year statute of limitations.  When the event ends the IRS can begin collection efforts again and the statute of limitations clock picks up right where it left off.  The IRS can also file for judgment, and when judgment is awarded, they can renew the judgment and start the clock over again.

While there are technically time limits for the IRS to act, it doesn’t mean they won’t try another avenue to investigate your tax situation. To me, there are fewer reasons to shred your documents after three, six or ten years than there are potential reasons to keep them as long as possible. Thankfully, with today’s technology, document retention is much easier, faster and less expensive than ever before. These services offer protections from data breaches, file deletion, or damage to your hard drive. Maintaining your tax documentation is important, and even though it is often felt three years of retention is adequate, the IRS has many opportunities to request data further back than that. I strongly recommend you digitize and store your tax filing documents for ten years minimum – just to be on the safe side!