2018 brought a lot of events to digest and could have allowed you to have the best year of your life, rebound from losses, or making some life changes. No matter your circumstance, a goal you should have is to realize tax savings by taking advantage of some proven year-end tips to reduce your taxable income. Let’s dive in!

Be Sure to Take Last-Minute Deductions

When you prepare your annual tax return, you must tally all available sources of taxable income to arrive at your gross income. From here, you may deduct the greater of either your standard deduction (shown in the table below) or your itemized deductions.

Filing Status 2020 Tax Year 2019 Tax Year Single $12,400 $12,200 Head of Household $18,650 $18,350 Married, Filing Jointly $24,800 $24,400 Married, Filing Separately $12,400 $12,200

Tax reform in 2018 dramatically increased the standard deduction to simplify the tax return process. If you don’t have enough deductions to overcome the high hurdle, it means you spend less time filling out your return.

However, if your deductions exceed the standard deduction, you will want to take advantage of last-minute deductions before the year ends. Doing so will lower your tax bill.

For example, if you receive a medical bill that isn’t due until 2019 but it can be paid in 2018, you might consider paying it now if it gives you more tax savings to take against your taxable income.

You can also accelerate a payment on a property tax bill due early in 2019. The same is true for an estimated state income tax bill due January 15. By paying bills like this due early in the new year but paid in the 2018 tax year, you can claim them as deductions against your 2018 taxable income and receive tax savings.

However, accelerating deductions could be a mistake if you find yourself subject to the alternative minimum tax, discussed more below.

Many people miss out on opportunities to take advantage of itemized tax deductions vs. the standard deduction. It is more than likely you will not itemize your deductions for 2018, however, they are still worth tracking. Allow TurboTax to figure out whether you should itemize or take the standard deduction.

If you find yourself on the borderline, your year-end strategy should focus on bunching your deductions. This means you should time your expenses to produce lean and fat years.

If you can control your timing, you should fit as many deductible expenses as possible into the year in order to surpass the standard deduction threshold. This will get you a larger tax deduction and save you valuable dollars come tax time.

In your lean years, you fall back to the standard deduction amount and attempt to accumulate as many qualifying deductions as you can until your fat years.



2. Be Mindful of the Alternative Minimum Tax (AMT)

As I mentioned above, taking last-minute deductions can be wise unless it comes back to bite you with the alternative minimum tax (AMT). Taking too many deductions can inadvertently activate the AMT.

The AMT originally came into being as a way to make sure wealthy taxpayers don’t use too many legal deductions to drive down their tax bill to unreasonable levels. However, with time, more and more middle-class people have become affected by it.

The AMT is a calculation done separately from your regular tax liability and comes with different rules. Of the regular tax bill calculation and the AMT math, you must pay the higher of the two.

This becomes a year-end issue because certain deductible expenses under regular rules cannot be deducted under the AMT. This makes accelerating certain deductions a bad idea.

Some examples of these are state and local taxes (SALT) like income and property taxes. The recent tax reform placed a $10,000 annual cap per household on these items. If you expect to be subject to the AMT in 2018, do not pay the installments due in January 2019 in December 2018.

Using TurboTax will be a useful way to figure out if you’re be subject to the AMT in 2018. TurboTax offers a Deluxe software version which will help you determine the applicability of the AMT. If you use the affiliate link, you can save $20 off the retail price.

3. Buy Low, Sell Low

It’s highly likely you’ve got a few investments which are lower are because the Fed still needed to learn how interest rates affect inflation and caused us to miss the Santa Claus Rally. That doesn’t mean you can’t use these losses to keep the tax man away!