November Newsletter

In this issue of the newsletter, I will write about a few tax-related ideas. I usually plan to send this newsletter out monthly or less. However, there are a lot of things that are useful to know before the tax filing deadlines next year, so I will be sending this out more frequently through March.

It is not too early to start thinking about what you might need to do to file your 2018 tax returns in just a few months.

Get organized! I will be sending my clients an income tax organizer in December. The organizer I send out contains information from last year’s return, and it is a helpful guide for collecting information that will be needed for this year. Some of my clients find completing the organizer to be helpful, and they answer all the questions and fill in all the applicable boxes with the current amounts. Other clients simply use the organizer as a checklist. Whatever works best for you is what you should do. If you are not one of my clients and you would like an organizer, ask your tax professional or contact me.

Can you prepare your own tax returns? Of course, you can prepare your own tax returns! If your tax situation is simple with only wages or a pension and few deductions, then you should be able to complete your return easily. One of the objectives of the tax reform passed last year was to simplify tax preparation for most taxpayers. However, taxpayers with more complex situations may have more complex tax returns. Keep in mind, however, that your return may not always be simple. Someday you may buy or sell a home, start withdrawing from IRAs, sell investments, or even turn a hobby into a side business. When that happens, it will be helpful for you to have a long-term relationship with your tax professional. Reputable professionals should charge according to a return’s complexity and the time required to do the work, so if you have a simple return, the cost of hiring a professional should be far less than the value of the piece of mind you would be purchasing. If you do prepare your own returns, you can download the federal forms from You can also find free software on the IRS website. Keep in mind that the IRS forms and free software do not include your state tax return. If you choose to hire a professional, you will want to read the newsletter next month when I will write about how to select a tax preparer.

What can you deduct? The standard deduction has increased greatly in 2018. Some estimates are that 94 percent of taxpayers may be able to take the standard deduction instead of itemizing.

IRAs and required minimum distributions. If you have an IRA, and you are turning 70 ½, you may be facing required minimum distributions (RMDs). The theory is that you could invest and defer taxes until retirement. Once you are retired, it is time to start withdrawing your investment and paying the taxes. That applies even if you don’t need or want the money and even if you are not retired. The amount of the RMD is based on your life expectancy. Your financial advisor or tax professional can help you determine the amount. Alternatively, you can find RMD tables on the IRS website, Don’t ignore RMDs if you are supposed to take them. The penalties are significant.

IRAs and Charitable Contributions. One option that you have if you have RMDs is to make a Qualified Charitable Contribution (QCD). With a QCD, a taxpayer makes a charitable contribution from an IRA instead of making a withdrawal. This year the new higher standard deduction may prevent some taxpayers from deducting charitable contributions. What typically would happen is a taxpayer would withdraw from an IRA, and then make the deduction for charitable contributions. The advantage to the QCD is that the money is not counted as income. Talk to your tax professional about QCDs and other strategies.

Should you contribute to an IRA? Circumstances vary. However, many people believe that it is worthwhile to contribute to an IRA to reduce current taxable income. If you think this might be a good idea for you, talk to your financial advisor and tax professional.