Five last-minute tax questions

Steve Merrell |

When it comes to minimizing taxes, it is good to leave no stone unturned. Here are five questions to ask yourself as we come to the end of 2018. As you think through these, you should consult with your own tax professional or financial advisor to see how they apply to your particular situation.


1. Should I do a Roth IRA conversion? The new tax law reduced marginal tax rates for many people, but unless Congress makes them permanent, they will expire at the end of 2025. The current window of lower tax rates may make doing a Roth conversion more attractive than ever before.


A Roth conversion may be even more attractive if your reported income is temporarily reduced. For example, maybe you retired recently and are living on social security augmented by taxable savings. As you spend down taxable savings, your reported income will be low, so a Roth conversion could be done at a relatively low marginal tax rate.  If you think a Roth conversion might make sense for you, you need to take action by December 31.

But be careful! In the past, the tax code allowed you to do a Roth conversion and then unwind it later the following year if you changed your mind—something called a recharacterization. That was taken away with the 2017 tax reforms, so be sure it is something you want to do before you pull the trigger.


2. Does it make sense to itemize deductions? With the increased standard deduction under the new tax law ($12,000 for individuals and $24,000 for married filers), a lot of people assume it won’t pay to itemize their tax deductions this year. However, before jumping to that conclusion, you might want to do some simple math. The itemizing threshold might be closer than you think.


For example, California state tax records show that more than 2.3 million Californians pay more than $10,000 per year in state and local taxes. In addition, the credit agency Experian reports that the average mortgage balance for Californians is $347,652. Assuming an average mortgage interest rate of 4% means that Californians pay, on average, $13,900 per year in mortgage interest. It seems pretty clear that many Californians will still find it beneficial to itemize their deductions.


3. Should I use a donor-advised fund to bundle my charitable contributions into a single year? If the higher standard deduction keeps you from itemizing deductions, you will not get the full tax benefit for your charitable giving. However, bundling several years’ worth of contributions with a donor-advised fund may help you over the itemizing threshold. The donor-advised fund is essentially a pool from which you can direct charitable giving in the years ahead. You get the benefit of itemizing while still maintaining control and flexibility. If this sounds interesting, check with the Community Foundation for Monterey County. They have a wonderful donor-advised program and they can fill you in on the details.


4. Have I taken all required minimum distributions? Be very careful with this. The penalty for failing to take your RMD is 50% of the amount you should have taken. If this is your first year with RMDs (meaning you turned 70 ½ during 2018), you have until April 1, 2019 to take your distribution. If this is not your first RMD, your RMD must be taken by December 31.


5. Should I do a qualified charitable distribution from my IRA? QCDs allow you to give up to $100,000 directly from your IRA to a qualified charity without recognizing the distribution as income. QCDs can also satisfy your required minimum distribution.




Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to