Summer is winding down, but someone needs to tell the thermometers. Across much of country, it feels like the mercury is about to burst and everyone is doing everything they can to stay cool.
Sorry, I can't help you beat the heat.
But I do have eight tax moves you can make in this eighth month of 2018 — which, with all those 8s, makes that this week's By the Numbers figure — that might be able to help lower the heat you're feeling when it comes to taxes.
1. Adjust your withholding.
I know. I nag remind y'all of this all the time. But this year added attention to your payroll withholding amounts is more important thanks to the Tax Cuts and Jobs Act (TCJA) changes. There are different tax rates and income brackets. A recent Government Accountability Office report found that millions could face withholding-related tax bills next year if they don't file correct W-4 forms for the 2018 tax year.
2. Rebalance your portfolio.
This is a good idea from both tax and investment perspectives. You want to see what assets have done well, which ones have disappointed and what you should do to make sure your long-term financial strategy is still on track. The TCJA kept the three capital gains tax rates (0 percent, 15 percent and 20 percent), but new income tax brackets that apply to those rates could mean more tax savings for many investors on profits from long-term assets. You'll also want to look at any losing assets you can sell to offset those gains and potential taxes.
3. Donate appreciated assets.
Sometimes a better portfolio move is to give away some of your appreciated assets. If they don't fit your changing investment plan, rather than selling them and owing tax on the profit, you can give the holdings to your favorite charity. Just make sure it's long-term property; that's assets you've owned for more than a year. The charity can cash in your gift and use the proceeds as it sees fit.
As for you, generous donor, you get a tax two- and possible three-fer. You avoid any capital gains tax on the donated asset's appreciated value. If you're subject to the net investment income tax (NIIT), reducing your assets' overall value with this gift could help you reduce or avoid that 3.8 percent surcharge. Plus, if you itemize, you can deduct the asset's value at the time you donated it.
4. Donate your required minimum distribution.
If you're 70½ or older, you must take out a certain amount from your tax-deferred retirement accounts every year. If you don't make your required minimum distribution, or RMD, then you'll face a hefty tax penalty. But you can meet your RMD obligation and help out your favorite charity. Simply roll up to $100,000 of your RMD directly to the nonprofit. This keeps you from owing the penalty and helps your chosen charity. You won't get a deduction for the RMD gift, but the direct transfer means you meet your RMD without having that money count as taxable income to you. The RMD donation also can help reduce your adjusted gross income, which then could help minimize potential taxes on Social Security benefits.
5. Give gifts to family and friends.
For many folks, giving starts at home. That not only makes for happier families, but also could be good for your taxes, too. Tax law says any taxpayer can give anyone else — not just relatives, but neighbors or friends, too — a nice chunk of change each year without owing federal gift tax. For 2018, the gift tax exclusion amount is $15,000.
By giving the annual amounts, you remove the assets from your overall estate. If you're wealthy, this could help reduce the amount that eventually could face the federal estate tax, which now kicks in for estates worth $11.18 million or more. It would take a lot of gifts to make a dent in $11+ million, but the gifts can add up, especially since the annual amount is not just per person, but per taxpayer.
That means a couple with two married children and six grandchildren, for example, could shift $300,000 a year to family members using the gift exclusion. Here's the math: $15,000 x 10 (for their two children, two sons/daughters-in-law and six grandkids) = $150,000 for each spouse, so $300,000 for the couple.
6. Contribute to your child's 529 plan.
These education savings accounts have always have had some great tax benefits. The contributions to 529 accounts, which are named after the tax code section that created them, aren't deductible, but the earnings grow tax free and withdrawals aren't taxes if they're used to pay eligible schooling costs. The TCJA expanded the costs that qualify for 529 money. Some secondary and even elementary school expenses now qualify.
7. Sell your home.
You've been thinking of downsizing for a while, but the TCJA prompted you to finally put that for sale sign in the yard. With the new tax law's $10,000 deduction limit on all your state and local taxes (SALT), you're losing some of the tax value of your real estate taxes. So you're going to rent for a while as you search for a less expensive home.
And by selling your current residence, you can take advantage of one of the best tax breaks available to homeowners. The TCJA still lets you pocket up to $250,000 of your home sale profit if you're a single taxpayer, twice that for married couples who sell their primary residences, and not owe a dime of income tax.
8. File your 2017 tax return.
Maybe you don't have any idea of how much to adjust your withholding because you haven't yet filed your 2017 taxes. Now would be a good time to get that tax task out of the way. Oct. 5 will be here sooner than realize. Plus, you could stop any interest and late-filing penalties that have been accruing since mid-April if the tax bill estimate you paid when you filed for your extension was off the mark.
And don't forget that if you qualify to use Free File, that no-cost online tax preparation and e-filing option is still available.
More monthly tax moves: These eight suggestions are just a few of the hot tax breaks to consider this month.
Find a shady spot, grab your favorite cool drink and check them out.