Tax and Financial Planning Calendar for December 2018


Month Income Taxes Saving and Investing
  • 4th quarter state estimates should be paid by 12/31 for people who itemize their deductions and will have less than $10k in state income taxes and real estate taxes combined.

  • Keogh plans and Solo 401(k)’s must be established by 12/31
  • 529 Plans must be funded by 12/31 to take full advantage of this year’s gift limit of $15,000.
  • Last chance to maximize annual contributions to your 401(k) or 403(b) plan of up to $18,500, ($24,500 if 50 or older).

A New Opportunity to Defer (And Possibly Wipe Out) Capital Gains Tax

One of the most interesting wrinkles of the Tax Cuts and Jobs Act, passed last December, was the creation of Opportunity Zones.

According to the IRS, Opportunity Zones are particular distressed communities throughout the country in need of economic revitalization.? Under a nomination process completed in June 2018, 8,761 communities in all 50 states, the District of Columbia, and five U.S. territories were designated as qualified Opportunity Zones.? Investing in an Opportunity Zone can provide substantial tax benefits to an investor, namely deferral on capital gains tax.

Investors may defer tax on almost any capital gain up to Dec. 31, 2026 by making an appropriate investment in a zone, making an election after December 21, 2017, and meeting other requirements.

Generally, to qualify for deferral, the amount of a capital gain to be deferred must be invested in a Qualified Opportunity Fund (QOF), which must be an entity treated as a partnership or corporation for Federal tax purposes and organized in any of the 50 states, D.C. or five U.S. territories for the purpose of investing in qualified opportunity zone property.

The QOF must hold at least 90 percent of its assets in qualified Opportunity Zone property.? ?Investors who hold their QOF investment for at least 10 years may qualify to increase their basis to the fair market value of the investment on the date it is sold, which would effectively eliminate any capital gains tax on the appreciation.

Here is a list of FAQs regarding Opportunity Zones published by the IRS:


Massachusetts residents may be interested to know that in May 2018, Governor Baker?s formal recommendation of 138 Opportunity Zones were all approved by the U.S Treasury Department.? Here is a link to that press release, in additional to the list of approved Opportunity Zone municipalities in the Commonwealth:

Buying and Selling Mutual Funds at Year End ? Be aware of Year-End Distributions

With the year-end upon us, many investors see it as the time to rebalance their investment portfolios.? However, savvy investors need to be aware of just when the timing is ?right? or ?wrong? to make that buy or sell trade happen.

Mutual funds are required by law to distribute the income earned within the fund each year to the shareholders of the mutual funds in the form of dividends and capital gain distributions. ?Typically, the bulk of these distributions occur near year end, late in the month of December.? The dividends and interest earned within the mutual fund as well as capital gains from sales must be distributed to the shareholders.? At the time of the distribution, the net asset value (NAV) of the fund decreases by the amount of the per share distribution because those assets are no longer held within the fund.? The result is taxable income to the shareholder and a reduction in the NAV of the mutual fund.

Thus, the date to be aware of is the ex-dividend date ? the first day that buyers of the mutual fund will not receive the dividend being paid out by a mutual fund.

Buyers will want to wait until after the ex-dividend date to buy into a mutual fund.? After that date they are buying into the fund at a lower NAV, because of the dividend distribution.? If they buy the mutual fund prior to the ex-dividend date, they are buying the fund at the higher NAV, receiving a taxable distribution, and then being left with the mutual fund at the lower NAV.? The major dilemma of purchasing before the ex-dividend date is that although the buyer will receive income in the form of a dividend and/or capital gain distribution, he will also have to report the income on his tax return and pay taxes on that distribution. ???After having been hit with a tax bill on the distribution, the buyer would be left with less money in his wallet than if the mutual fund was simply purchased without the dividend payment.

The opposite is true for sellers.? Sellers want to sell their mutual fund shares before the year-end distribution.? Selling before the ex-dividend date end will result in the entire gain being subject to lower capital gain tax rates.? Waiting until after the ex-dividend date, the seller will receive a taxable distribution.? This scenario would result in income from the sale of the mutual fund being taxed at a capital gain, but the dividend distribution portion being taxed at a higher ordinary income tax rate.

Bottom line is as follows ? buyers want to purchase shares after the ex-dividend date while sellers should sell shares before the ex-dividend date.? Following these rules should help investors to lessen their tax exposure on their mutual fund income.

Checklist to Cut Your 2018 Taxes

It’s not too late to cut your 2018 tax bill.? Prior to Dec. 31st:

  • Increase your 401(k) and 403(b) contributions if you haven’t been contributing at the maximum rate all year. This year you can put away up to $18,500 ($24,500 if 50 or older) into your 401(k) or 403(b) plan.? If you?re self-employed, consider setting up a Solo 401(k) by 12/31.
  • Take a look at your withholdings and instruct your employer to withhold additional taxes if you haven?t had enough taxes withheld during the year and might get hit with an underpayment penalty.
  • Consider selling your non-retirement investments that have decreased in value since your capital losses can offset other capital gains realized during the year (including from your mutual funds), and then can be used to offset up to $3,000 of wages and other income.
  • Send in your January 2019 mortgage payment early enough so it will be processed prior to 12/31/18. By sending in your payment a few weeks early, you can deduct the interest portion of that payment a full year earlier.
  • Clean out your closets and donate your clothing and household items to a charitable organization since “non-cash” contributions are deductible if you itemize. Don?t forget to get a receipt. And make sure to put together a list or photos of the donated items, including each item?s condition since only donations of clothing and household items in “good condition or better” qualify for a deduction.
  • For gifts of money, making your donation by credit card before December 31st allows you to deduct the donation on this year’s return, even if you don’t pay your credit card bill until 2019.? And you always have the option of donating appreciated investments to charities. You get to claim your donation based on the value of the assets donated, without paying any capital gains taxes on the appreciation.
  • Consider contributing to a Donor Advised Fund?if you are married and no longer have a substantial mortgage.
  • Pre-pay or pay off your medical bills if your total medical expenses exceed 7.5% of your income and you itemize.?
  • Consider the simplified method home office deduction if you are self-employed, maintain an area of your house used exclusively and regularly as a home office, but don?t maintain accurate records documenting expenses for your house.? Claiming the simplified home office method as a tax deduction can lower your self-employment net income by as much as $1,500.

It’s Open Enrollment Season. Time to Take a Good Look at HSAs

To the best of my knowledge, contributing to a Health Savings Account (HSA) is the only investment opportunity that allows for tax-deductible contributions and tax-free withdrawals. Please note that only individuals with a qualifying high-deductible health insurance in place are allowed to contribute to an H.S.A. You can ask your health insurance provider if the plan you have qualifies.

Insurance is set up to protect individuals from a financial catastrophe.? Over the years, however, health insurance evolved to more of a system that paid for all of the healthcare costs for individuals and families. I’m guessing that was to encourage people to have their annual physicals and to seek out medical care as soon as possible, since treating an illness early could end up being a lot less expensive than having a person avoid seeing a doctor to save the cost of the visit.? Pay a doctor $100 now for a consult and save thousands later on treatments that potentially could have been avoided with some preventative visits.

Due to skyrocketing healthcare costs, a larger portion of the cost of early visits now falls on the individual.? Since you are looking for your health insurance to protect you against the catastrophic and not to pay all your small health related bills, that’s actually fine.

If you and your family are reasonably healthy, take a look at switching to a qualifying high-deductible health insurance plan and start contributing to a Health Saving Account to receive the following tax breaks:

  • Amounts contributed to an HSA are tax-deductible whether your employer contributes or you contribute on your own.
  • Amounts invested within the HSA grow tax-deferred.
  • Amounts withdrawn to pay your family’s healthcare cost are tax-free.
  • Any money remaining within the HSA once you turn 65 can supplement your retirement.? You will owe income taxes on money distributed.? Most likely you will have medical and dental expenses to pay from your HSA that will would be tax-free.

The maximum you contribute to an HSA for 2018 is $6,900 for a family or $3,450 for an individual.? Anyone 55 or older by 12/31/18 can add another $1,000 this year.

And as we wrote earlier this spring, HSAs make a great Buy and Hold Proposition.? Instead of using money from your HSA to pay routine healthcare bills for your family, pay those bills out of your household account and keep more money in your HSA growing in a? tax-deferred envelope that will ultimately be available for tax-free distributions down the road.? You can purchase low-cost Vanguard funds through HSA Bank.

2018 & 2019 Tax Facts

  • For 2018, the standard deduction for a single individual is $12,000 and for a married couple is $24,000. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes) AND real estate taxes limited to $10k per year, mortgage interest, charitable contributions, and medical expenses in excess of 7.5% of income in 2018 and 10% of income after that.
  • Starting in 2018, personal exemptions are no longer deductible.?
  • The?maximum earnings subject to?social security taxes is $128,400 for 2018,?increasing to $132,900 in 2019.
  • The?standard mileage rate?is $.545 per business mile?as of January 1, 2018, up from $.535 for 2017.
  • The?maximum annual salary deferral?into a?401(k) plan?or a?403(b) plan?is $18,500 in 2018, increasing to $19,000 in 2019.? And if you’ll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year.
  • The?maximum annual contribution?to your?IRA?is?$5,500 for 2015 through 2018, increasing to $6,000 in 2019.? And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.? You have until April 15, 2019 to make your 2018 IRA contributions.