FYI: You only have until Dec. 31 to score these 2018 tax breaks
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Updated on Dec. 11, 2018: We know you're drowning in wrapping paper, packing for holiday flights and hitting up soirees, but Dec. 31 doesn't just mark the end of 2018. It's also the deadline for important tax stuff.
Here are five things you need to do by the end of 2018 to lower your forthcoming tax bill.
Money going into an employer-sponsored 401(k) isn't considered taxable income, but you can only subtract funds that hit the account through Dec. 31. If you're looking for a tax break, contact your human resources department to see about making a last-minute contribution. For 2018, you can put up to $18,000 into a employer-sponsored 401(k) plan. That figure jumps to $24,000 if you're 50 or older.
The IRS lets itemizers deduct charitable donations up to 50% of their adjusted gross income. You have to make donations by end-of-day December 31 to include them on your 2017 tax return, though.
Contributions into a 529 college savings plan — a custodial trust fund that helps a beneficiary pay for their higher education — also don't count as taxable income in 34 states. As such, this account is another option when it comes to scoring a state income tax break for 2018 ... so long as you make the contribution by, you guessed it, Dec. 31. (Editor's Note: An earlier version of this article erroneously stated you could get a federal tax break by contributing to a 529 plan. You can't deduct contributions on your federal tax returns, but anything you earn on your investments is tax-free.*)
There's no hard and fast limit for how much money you can put in a 529 plan each year. The IRS provides this vague descriptor: "Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary." (Thanks, IRS!)
Still, keep it under $14,000 if you want to avoid gift tax consequences.
Bonus tip: Seven states — Georgia, Iowa, Mississippi, Oklahoma, Oregon, South Carolina and Wisconsin — have extended deadlines, so, if you live in one, you can score a tax break on your state return post-2018.
If you're 70-and-a-half-plus years old, you actually have to take money out of your retirement accounts, including 401(k)s, traditional IRAs, SEP IRAs and SIMPLE IRAs, each year to avoid a penalty. Those required minimum distributions — which vary by age and marital status — must get made by Dec. 31. Otherwise, they'll get taxed at 50%. The big exception? If you turned 70-and-a-half in 2018, you have until April 1 to take the distribution.
OK, spending the money in your flexible spending account (FSA) — an employer-sponsored, tax-exempt fund used to save for medical expenses — won't change much on your 2017 tax return. (The money's deducted from your taxable income when it goes in the account, so you're already getting that benefit.) But funds in those accounts are "use it or lose it," meaning leftover dollars don't necessarily roll over to 2018. Now's the time to see if your employer provides a grace period or allows you to at least roll some funds (up to $500) over to next year. If not, it's time for trip to, say, the dentist, optometrist or drug store. You can put leftover FSA funds toward things like bandages, eyeglasses and breast pumps.
Can't make the year-end deadline? Here are some things you can do post-new year to lower your tax bill.
Image: Sam Edwards
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