4 Tips to Stay Tax-smart in 2018

By Scott Thoma March 15, 2018

Are you looking at a tax bill for 2017 and wondering if you could invest smarter from a tax perspective? Investment Strategist Scott Thoma discusses four tips for tax-smart investing this year.

Tip 1: Talk with your tax professional.

The new tax law, which is effective for tax years starting in 2018, ushered in lower individual tax rates; an increased standard deduction; limits to the deductibility of state, local and property taxes – which are capped at $10,000 – and changes to certain investment accounts, among other things. With the increase in the standard deduction, fewer people may itemize their deductions in the future, which could affect charitable gifting strategies.

At Edward Jones, we do not provide tax or legal advice, so you'll definitely want to consult your attorney or qualified tax advisor. Your situation is unique, and it’s important to understand how tax reform may affect you.

Tip 2: Contribute to a loved one’s 529 education savings plan. 

There have been changes to 529 education savings accounts. These accounts may now be used to pay for up to $10,000 of tuition expenses per year, per student, for enrollment at a public, private or religious elementary or high school. Before, they covered only higher education costs. That said, since these plans are administered by the states, it’s important to check with your plan and state to see if they’re adopting these new rules. Even if they’re not, these plans are a popular way to save now for college costs down the road, so consider contributing to a child’s or other loved one’s account.

Tip 3: Fund your IRA early and often. 

Individual Retirement Accounts are a popular vehicle for retirement savings. The good news is that the new tax law did not change IRA solutions available to individuals, so you can continue to take advantage of their savings benefits.

And the best way to do that is to fund your IRA early and often. If you wait until the tax deadline each year, you could be missing out on 15 months of tax-deferred growth potential. Although that may not seem like a long time, this is a long-term investment, so those missed months may impact your retirement savings considerably over the years. You can even set up systematic contributions to your IRA for one less thing to remember. 

Tip 4: Explore tax diversification options with your financial advisor. 

While tax rules have changed starting in 2018, what we can’t predict is how they might change by the time you retire. Just as it’s helpful to diversify your investments by type and maturity, Edward Jones also recommends you consider tax diversification, or having money in accounts with different tax treatments, such as taxable, tax-deferred and tax-free. Some accounts offer tax benefits now and others tax benefits later – tax diversification can provide you with flexibility to help maximize your after-tax income. 

Talk to your financial advisor about what makes sense for you. You’ll want to discuss all these strategies with your financial advisor and tax professional to ensure they’re appropriate for your situation.

Important Information:

This information is for educational and illustrative purposes only and should not be interpreted as specific investment advice. Edward Jones, its employees and financial advisors cannot provide tax or legal advice. Investors should consult their attorney or qualified tax advisor regarding their situation. Investors should make investment decisions based on their unique investment objectives and financial situation.

More Resources:

Tax Resources

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Tax-smart Strategies

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Do I Have Everything I Need to File?

This checklist can help you track documents you may need to complete your 2017 income tax return.

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