Year-end tax scramble

Steve Merrell |

It’s time for the annual year-end tax scramble—the time when people like you and I try to figure out how to wrangle a few extra bucks out of our anticipated tax bills. After last year’s tax reform, this year’s scramble is probably going to be a little more limited. However, here are a few end-of-year tax saving ideas you should look at.


First of all, go for the low-hanging fruit. If your employer offers an employer-sponsored retirement plan like a 401(k) plan, make sure you maximize your contributions. This is the easiest tax deduction available and for most people it is one of the biggest. The contribution limit in 2018 is $18,500. If you are age 50 or older, your contribution limit increases to $24,500. Contributions must be made by December 31, so you still have time to catch up if you haven’t participated so far this year.


You might also benefit from contributing to a traditional IRA. The 2018 IRA contribution limit is $5,500 for taxpayers younger than 50 year old, and $6,500 for those over 50. The tax deduction may be reduced or eliminated if you or your spouse are covered by an employer-sponsored plan and your income is above certain levels, so check with your tax professional before making your contribution. The IRA deadline is April 15, 2019.


Health Savings Accounts are another easy tax benefit. If you have HSA-compatible health insurance, you can make tax-deductible contributions of $3,450 for single coverage and $6,900 for family coverage. If you don’t use the HSA funds this year, that’s okay because they grow tax-free just like an IRA. In fact, HSAs are better than IRAs because the money also comes out tax free as long as it is used for qualified medical expenses. The deadline to open and fund an HSA is April 15, 2019.


If you are going through a divorce, the new tax law gives you an incentive to get the details ironed out and the agreements signed by year-end. Alimony payments are deductible if the monetary payments are spelled out in the divorce agreement and the agreement is signed by December 31, 2018. If you sign the papers after December 31, you lose the tax deductibility.


Taxpayers who are charitably-minded may benefit from grouping several years’ worth of donations into a single year in a process known as bundling or bunching. For example, let’s suppose you budget to donate $5,000 per year to charitable causes. If your total deductions are not large enough to warrant itemizing them on your tax return, you effectively lose the tax benefit of your $5,000 contribution. However, if you were to “bundle” several years’ worth of donations into a single contribution this year, your deduction would be large enough to itemize. You get the additional tax benefit this year and you still get the full benefit of the higher standard deduction in future years.


A good way to bundle charitable contributions is with a donor-advised fund. Be aware that a contribution to a donor-advised fund is a completed gift. Once made, the money belongs to the fund’s sponsoring charity. However, donor-advised funds allow you to direct future giving out of the fund to the charities of your choice. If you want to know more about donor advised funds and how they work, including their limitations, I encourage you to contact the Community Foundation for Monterey County. They do a terrific job.




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