September: It's Not Too Soon For Taxes


By Mark Avallone

With the April 15 tax-filing deadline still months away, it may seem early to consider taxes, but when it comes to reducing your tax bill, starting early makes eminent sense. Too often tax planning is delayed until very late in the year or until we complete our tax returns. By then it is often too late to take corrective action.

To help you plan early and effectively, here are four tips to consider.

Determine if you will be itemizing your tax deductions or if you will be using the higher ‘Standard Deduction.’

The recently passed Tax Cut and Jobs Act significantly raised the Standard Deduction to $12,000 for singles and $24,000 for married couples. According to Keat Bhutani, a CPA with Axxis Financial in Maryland, “Many Americans who previously benefited from itemizing deductions on their tax returns will no longer be in that situation.” In other words, the new Standard Deduction is now more likely to result in a lower tax bill versus itemizing deductions such as mortgage interest. If this is going to be the case, and if you have extra cash in a bank account, consider paying down some of your mortgage or home equity line.

In the past, many Americans were comfortable with “cash-out refinances,” or adding to their home equity lines-of-credit because the tax deductibility of the interest lowered the overall cost of indebtedness. “If deducting mortgage interest is no longer beneficial for you,” Bhutani explains, “it may be time to re-examine the true cost of your debt.” While pre-paying some mortgage debt doesn’t specifically lower your taxes, it may increase the overall efficiency of your financial plan.

Harvest your tax losses now.

The IRS allows you to deduct up to $3,000 of capital losses each year. While the U.S. is firmly in a bull market, not all stocks are up, and other countries, especially emerging markets, have struggled. So, review your losing positions and carefully consider if it makes sense to exit. If you want to sell, avoid the potential mistake of waiting until year-end when many investors rush to sell their losers. Selling early may help you stay a step ahead of others who are selling and thereby adding downward pressure on the stock price. Of course, there are many factors influencing stock prices, but for stocks that have languished, year-end tax selling can be yet another factor causing price declines.

Continue Reading Here