With the beginning of the new year coming up, here is a quick list of financial and tax to-dos you should address before this year ends:

Check your FSA balance. If you have a Flexible Spending Account (FSA) for health care expenses, you need to incur qualifying expenses by December 31 to use up these funds, or you will possibly lose them. (Some plans give you a 2½-month grace period to incur qualifying expenses or permit you to roll over up to $500 to the following year.) Use expiring FSA funds to pay for dental work, eyeglasses or eligible medications or health products.

Max out tax-advantaged savings. Reduce your current year income by contributing to Health Savings Accounts, employer-sponsored retirement plans or traditional IRAs to the extent you’re eligible. (Certain vehicles, including traditional and SEP IRAs, permit you to deduct contributions on your current year tax return if they’re made by April 15.)

Take RMDs. Before the end of the year, you usually need to take required minimum distributions (RMDs) from IRAs or qualified employer-sponsored retirement plans to avoid a 50% penalty if you have reached age 70½. If you have turned 70½ this year, you have until April 1, 2019, to take your first RMD. However, consider if you defer your first distribution, you will have to take two next year.

Consider a QCD. If you are 70½ or older and charitably inclined, a qualified charitable distribution (QCD) permits you to move up to $100,000 tax-free directly from your IRA to a qualified charity and to apply the amount toward your RMD. Doing this is a big advantage if you would not otherwise qualify for a charitable deduction (because you don’t itemize, for example).

Use it or lose it. Make the most of yearly limits that do not carry over from year to year, even if doing so would not provide an income tax deduction. For instance, if gift and estate taxes are a concern, make annual exclusion gifts up to $15,000 per recipient. Contribute the maximum amount you are permitted if you have a Coverdell Education Savings Account.
Contribute to a Sec. 529 plan. Sec. 529 prepaid tuition or college savings plans are not subject to federal yearly contribution limits and do not provide a federal income tax deduction. However, contributions might entitle you to a state income tax deduction (depending on your state and plan).

Review withholding. The IRS warns that people with more complex tax situations face the likelihood of having their income taxes under withheld due to changes under the Tax Cuts and Jobs Act. Use the IRS withholding calculator (available at irs.gov) to review your situation. If you could end up facing underpayment penalties, increase your withholdings from either your or your spouse’s wages for the rest of the year. (Withholdings, unlike estimated tax payments, are treated as if they were paid evenly over the year.)

Please contact us for help with these and other year-end planning ideas.

© 2020 Ben R Shull CPA LLC

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