Top 5 Tax Strategies for 2018

Discover top tax strategies for 2018 to maximize your financial benefits amid evolving federal and state tax laws. From organization tips to leveraging loss harvesting and Roth IRA conversions, this guide helps you navigate tax planning effectively. Stay informed about changing regulations and develop a solid plan to optimize your refunds and minimize liabilities this year.

Effective tax planning for 2018 is essential to optimize your financial situation. Understanding how federal tax reforms influence your taxes can help you make smarter money decisions next year. Since new legislation may increase some taxpayers' liabilities while benefiting others, it's vital to stay informed. Here are five key strategies to consider for your 2018 tax planning.

• Stay Organized
  Preparing for taxes is easier when your financial records are in order. Creating a reliable system to store receipts and statements throughout the year ensures a smoother process. Keep copies of all tax returns secure, and consider backing them up on external drives, as digital theft or hardware failure can occur. Retain essential documents like property and investment statements for longer periods beyond the standard three years, especially if these assets haven't been sold.

Staying organized reduces stress and simplifies tax prep. Proper record-keeping allows for accurate deductions and credits, ensuring you maximize your refund or minimize your liability. Securely storing originals and backups of your documents safeguards your financial data against unforeseen circumstances.

• Monitor State-Level Tax Changes
  Federal reforms often influence state taxation policies. Many states align their tax codes with federal rules, making it important to track local adjustments. While federal legislation may reduce deductions, exemptions, and income tax rates, some states might also lower their own rates to attract residents or expand revenues. Notable states expected to see tax rate changes include Georgia, Michigan, Minnesota, Arizona, Nebraska, Colorado, New York, and Maryland. Being aware of these variations helps tailor your 2018 tax approach accordingly.

• Leverage Capital Losses
  Following a volatile stock market in 2018, investors can consider harvesting capital losses. Selling underperforming assets and reinvesting can offset gains, reducing tax burdens. Losses exceeding gains up to $3,000 can be deducted from ordinary income annually, with excess losses carried forward to future years. Strategic loss realization can help optimize your taxable income.

• Explore Roth IRA Conversions
  Converting traditional IRA funds into Roth IRAs offers tax-free withdrawals, making it an advantageous move in 2018. This conversion may trigger tax payments on the transferred amount but allows future growth and withdrawals to be tax-free. Since tax rates have decreased post-reform, now might be an ideal time to perform conversions, especially if market prices are low. Using non-IRA funds to pay taxes on the conversion can also be beneficial.

• Develop a Refund Management Plan
  Many taxpayers receive sizeable refunds annually, often used to pay off debt or boost savings. However, over-withholding can lead to lower refunds or owing money at year-end. Relying solely on refunds for financial management might mean missing out on potential investment gains. Adjusting withholding or creating alternative savings strategies can improve cash flow and financial stability.