Video: 10 end-of-year tax tips for procrastinators and planners alike

November 13, 2017 : Annelise Wiens

It is the time of the year when procrastinators and planners both are looking for those last-minute, end-of-year tax tips that could save them money on their 2017 tax return. Here are year-end tax planning 10 tips taxpayers can use, whether they’re just starting to think about their 2017 tax return or they’re putting the final touches on their 2017 tax plan:

Don’t forget about use-it-or-lose-it money in flexible spending accounts

Putting money in a flexible spending account (FSA) during the year saves taxpayers from paying taxes on that amount. Then, taxpayers can use this money tax-free on qualified medical expenses.

“Whatever funds you don’t spend before the end of the year – or grace period, if your company’s plan provides one – is just money left on the table,” said Nathan Rigney, lead tax research analyst at The Tax Institute at H&R Block.

Instead, taxpayers should make sure to use this money for unreimbursed medical expenses like eyeglasses, prescription medications, medical equipment or copays. If they still have extra money in the flexible spending account to spend, they might want to schedule end-of-year appointments or buy prescription medicine they will need in 2018.

Sign up for health insurance

Taxpayers without insurance could have to pay a penalty of $695 per uncovered adult and $347.50 per uncovered child (to a maximum of $2,085) or 2.5 percent of their household income over their filing threshold, whichever is greater. A family of four earning $60,000 could pay a penalty of more than $2,000 for 2017.

To avoid these penalties in 2018, taxpayers may enroll in a health insurance plan on the marketplace by Dec. 15, purchase an individual health insurance policy or enroll in their employer’s health insurance plan. Some taxpayers will also qualify for advance premium tax credits to help them pay their health insurance premiums on the marketplace.

“If you didn’t have health insurance coverage for any month of 2017, you should visit a tax professional who can help you determine if you qualify for one of more than a dozen of exemptions that can reduce or eliminate your penalty,” Rigney said.

Plan to accelerate or delay payments

Nearly every tax filer can claim a standard deduction, which reduces their taxable income, which in turn reduces their taxes owed. For 2017 returns, the standard deduction is $6,350 for single filers and $12,700 for married couples filing jointly.

There is a way for some taxpayers to increase their deduction beyond the standard amount – and it doesn’t involve walking down the aisle. Taxpayers can choose to itemize their deductions instead, which means they deduct specific qualifying expenses, including mortgage interest payments, state and local income or sales tax and charitable donations. If their itemized deductions add up to more than their standard deduction, the taxpayers can get a bigger tax benefit by itemizing.

If a taxpayer has itemized deductions that total less than the standard deduction for their filing status, they should plan to claim the standard deduction. And if they know they’re claiming the standard deduction this year but expect to itemize next year, they may prefer to wait until January to make some payments, like donating to charity. Delaying those expenses until 2018 could boost their ability to itemize more in 2018.

Or, if they think they won’t have as many itemized deductions in 2018 as they do in 2017, they might be able to accelerate some payments and shift some deductions from next year to this year.

In all these cases, taxpayers should remember that tax planning occurs over a multi-year horizon and paying an extra amount this year could hurt some taxpayers in 2018.

Estimate income and determine if a tax benefit phaseout could affect the tax return

Many tax benefits generally phase out, usually as an individual’s income increases. At a certain point, the tax benefit may be eliminated altogether or it may be available only at a small amount. If taxpayers are close to a phaseout range of a tax benefit they’re otherwise eligible for, they could try to lower their adjusted gross income (AGI) so they can claim the tax benefit, for example by contributing as much as possible to a pre-tax retirement plan, such as a 401(k) or 403(b) or a deductible IRA.

Contribute to a retirement account to lower adjusted gross income and taxable income

Lowering AGI and taxable income is always good, but especially if the taxpayer is getting phased out of a tax benefit. Contributing to a pre-tax retirement plan lowers both AGI and taxable income. These plans include 401(k)s, 403(b)s, deductible IRAs, SIMPLE IRAs and SEPs.

Taxpayers have until Dec. 31 to make contributions to 401(k)s and 403(b)s for 2017. They have until April 17, 2018 to make contributions to IRAs and some other plans.

Donate to a charity to lower taxable income

If a taxpayer itemizes, they can lower their taxable income by donating to charity. They must give to a qualified charity by Dec. 31 and keep the necessary documentation, which will vary depending on the type and amount of the gift.

Consider a qualified charitable rollover to lower adjusted gross income and taxable income

Taxpayers who are at least 70½ should consider a trustee-to-trustee transfer of some or all of their required minimum distributions to a qualified charity. Doing so lowers their AGI which, in turn, lowers the amount of Social Security subject to tax.

“Many retirees no longer have enough expenses, like home mortgage interest, to justify itemizing their deductions. By making a qualified charitable rollover, they can get a tax benefit even if they do not itemize,” Rigney said. 

Sell certain securities

Taxpayers with a large net capital gain so far this year might want to sell some stock to generate a loss before year end. Doing so could reduce the amount of tax they pay this year. But in any case, taxpayers should not let possible tax savings cause them to make a decision contrary to their overall investment strategy or financial needs.

Investigate before buying mutual funds

Taxpayers who are planning to invest a large amount in a mutual fund should find out when the fund declares and pays its dividend.

“Confirm that the fund isn’t declaring and paying a large amount of dividends before the end of the year,” Rigney said. “Buying shares before the dividend is declared could mean you’ll increase your income by the amount of the dividend. This is true even if you reinvest the dividend in new shares.”

Taxpayers should look for this information at the fund company’s website.

Consult a professional about potential tax changes

The uncertainty about what Congress may or may not change in the tax code can make tax planning more difficult. This is a good time for taxpayers to talk to a tax professional about their specific circumstances to help get them prepared for any changes. 

After taxpayers make their final tax moves for 2017, they can look forward to filing their return, and then start tax planning – or procrastinating – for 2018. 

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Annelise Wiens

Annelise Wiens

Editor and Producer

As the newsroom editor, Annelise Wiens is interested in more than just tax and industry news, but the stories of H&R Block's 80,000 associates, their communities and H&R Block's world headquarters in Kansas City, Missouri. Wiens joined H&R Block in 2014 from a public relations agency, where she worked with clients in the financial services industry. Before that, she worked as a communicator for a senior member of the United States House of Representatives. She graduated from Biola University in La Mirada, CA with a bachelor's degree in history.

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