No one wants to miss an important financial deadline, especially when there may be costly repercussions. Mark your calendar with these financial to dos to avoid paying unnecessary penalty fees or missing out on savings opportunities – and stay on track to your wealth goals.
1 PAY YOUR INCOME TAX
This year the tax filing deadline is Tuesday, April 17th since the 15th falls on a Sunday and the 16th is Emancipation Day (the day President Lincoln freed the slaves and a recognized holiday in Washington, D.C.). If you cannot have your taxes completed by the deadline, you must file for an extension by April 17th. Then you have until October 15th to submit your return.
What happens if you miss the deadline? The IRS is not as concerned if your return is late if they owe you money, but you don’t get your refund until you file. If you owe the IRS money and miss the deadline without filing for an extension, you will be assessed penalty fees.
2 PAY YOUR INCOME TAX (QUARTERLY) IF YOU HAVE NON-WITHHELD INCOME
Individuals who do not have estimated taxes withheld from a regular pay check need to make quarterly estimated tax payments to the IRS. This applies to people who are self-employed or business owners, and those who earn interest, dividend or rent income of greater than $1,000 for the year. In 2018, quarterly payments are due, as follows:
• 1st quarter – April 17, 2018
• 2nd quarter – June 15, 2018
• 3rd quarter – September 17, 2018
• 4th quarter – January 15, 2019
3 MAXIMIZING HEALTHCARE BENEFITS
Nearly 7% of the average high-net-worth household’s expenditures goes toward healthcare,* so it’s important to maximize the benefits your health plan provides.
During your firm’s open enrollment period (generally held for a few weeks in the fall, with plan changes effective January 1st) take the time to re-evaluate your options based on your recent plan usage and potential changes to the offerings. Company’s deadlines differ, so check your firm’s cut off for plan enrollment, contributions and expense submissions.
Also, don’t leave healthcare money on the table. If you have a Flexible Spending Account (FSA), you may need to ‘use it or lose it’ by year end. The IRS allows employers to give FSA owners a grace period of 2 ½ months past the end of the year to use up the funds. If you have money remaining in your FSA for 2017, check to see if your employer provides an extension through March 15th. If so, and you do not have any medical appointment scheduled, you can make eligible medical purchases, including prescriptions, over the counter medicines and other products such as bandages, thermometers and first aid kits. And, keep in mind that FSAs generally require active renewal during your employer’s open enrollment period.
However, if you have a Health Savings Account (HSA) the funds roll over every year and can also earn interest – and there is no usage deadline. An HSA is a high deductible plan you contribute to with pre-tax dollars (up to the allowable limit). Interest earned, investment gains and allowable withdrawals are also tax-free. The deadline for contributing to an HSA is the same as the tax deadline. This means that you can make 2017 contributions through April 17, 2018.
4 PREPARE FOR RETIREMENT
To maximize your retirement savings, take advantage of opportunities to fund your account with pre-tax savings. Know the deadlines for contributing to (and withdrawing from) the plans that are relevant to you.
• For Traditional and Roth IRAs, the most common retirement savings vehicles, you can contribute up to the allowable maximum by the tax deadline, April 17, 2018.
• SEP IRAs, generally for small business owners and their employees, must be established and funded by the tax filing deadline; if you file an extension, you have until the extension deadline, October 15th.
• Contributions to employer sponsored qualified retirement plans, such as a 401(k), are typically due on the last business day of the calendar year. Keep in mind that only funds withheld from your paycheck are tax deductible.
• Individual 401(k)s must be set up by business fiscal year end, typically December 31st; contributions can be made through tax filing deadline, including an extension. If you are older than 70 ½, remember to take your required minimum distribution (RMD) from your IRAs by December 31st. Failure to take RMDs on time can result in a penalty.
5 TAKE ADVANTAGE OF YEAR-END TAX STRATEGIES
Effective tax planning strategies can help you minimize your income and estate taxes, provide for your family or favorite charity, and grow your retirement account. Making a gift to a loved one can be done without tax consequence if you keep it within the annual exclusion limit which is currently $15,000 per donee. Making a charitable donation is a way to reduce your income taxes and do good at the same time – but donations must be made by December 31st. Donating highly appreciated stock instead of cash will provide further benefit by allowing you to avoid capital gains tax on the appreciation.
You can also reduce your tax burden through tax-loss harvesting, selling a security that has gone down in value to offset investment gains. While you have until year-end to do so, it often makes more sense to take advantage of this strategy earlier in the year, such as when your investment portfolio is rebalanced. Your Luma Wealth advisor can work with you to determine if this strategy makes sense for your situation and recommend the appropriate timing.
*Household healthcare spending in 2014, Bureau of Labor Statistics, August 2016, Vol. 5/No. 13
Mark Your Financial Calendar
Tracking financial dates and deadlines is an important aspect of wealth planning. Luma Wealth Advisors helps its clients keep on top of their financial calendars and stay in control.