Tax Day 2018: Start planning now

Dollar Clock

Now that Tax Day has come and gone, are you comfortable with the outcome? If not, there are plenty of things you can do now and steps to take to set yourself up for a successful Tax Day in 2018. At the beginning of each tax year ask yourself, “What are the deductions that I can take to reduce my taxable income?” There are a few things to consider to improve your tax situation for the year ahead.

Utilize pre-tax savings vehicles

One of the biggest and most beneficial ways to reduce taxable income is to defer as much money as possible into an employer-sponsored retirement plan. The current maximum contribution limit is $18,000. That’s a lot of money and I know people think, “I’ll never be able to put away $18,000,” but, it’s important to aim for that goal because it will reduce taxable income dollar for dollar. And a catch-up provision is available for those aged 50 and older, which allows them to contribute an extra $6,000 per year.

Contributing the maximum to a company retirement plan has more benefits than simply reducing taxable income. By doing so, you are setting yourself up for a more comfortable retirement by saving and investing a healthy portion of your current income for the future. Another simple way to reduce taxable income is contributing to a Health Savings Account (HSA). HSAs and 401(k)s are treated similarly for tax purposes. Dollar for dollar what you put into an HSA account goes toward reducing your taxable income.

Maximize on charitable donations

Are you charitably inclined? Giving to charities of your choice is the second biggest way to reduce your income. Are you interested in 501(c)(3) organizations? When contributing to qualified organizations, be sure to keep track of donations as they may have the power to reduce your income dollar for dollar. Find a system that works for you, whether it’s an excel spread sheet or printing and keeping receipts, as donations can add up quickly. If you make donations throughout the year and don’t keep track, when April comes around and it’s time to gather your deduction info, chances are you won’t remember how much you donated or to whom.

Reduce passive taxable income

So, you’ve already put as much as you can into a 401(k) and you’re keeping track of charitable donations.  Next you’ll want to look at ways to reduce passive taxable income. If you have money invested in bonds that pay interest, like corporate bonds, that interest is taxable. Depending on your tax rate, you may want to consider putting money into a municipal bond. For federal income tax, interest paid by municipal bonds is tax free. Additionally, if the bond is from the municipality where you live, then it is also free from state income tax. For example, if you are a Pennsylvania resident who purchases a Pennsylvania municipal bond, that bond is free from state and federal tax.

Offset capital gains

One final thing that we at Fort Pitt regularly do for our clients, is to offset taxable gains. If you’ve taken any capital gains on your investments throughout year, at the end of the year, you may be able to offset those gains through tax-loss-selling. The way this works is to identify investments that have declined in value since you first purchased them, and sell those investments at a capital loss in order to offset the capital gains earned in that year. This may sound counter intuitive because we never want to take a loss, but if any investments did lose value, then you can take advantage of that to offset any gains you may have reaped. For example, say you sold a stock in June and you earned a $10,000 capital gain, that’s great, but it’s taxable. Fast forward to December. You may have made an investment that wasn’t as successful and we would suggest selling it and using that amount to offset the gain you received in June. Then, if you still really like the stock, simply wait 30 days and buy it back!

There are a number of different strategies that people can employ to reduce their taxes, but we don’t want you to end up in murky water. Start off with these tactics and always consult your accountant or tax advisor if you have questions throughout the year.

Fort Pitt Capital Group is an investment advisor registered with the United States Securities and Exchange Commission (“SEC”).  For a detailed discussion of Fort Pitt and its investment advisory fees see the firm’s Form ADV Part 1 and 2A on file with the SEC at The views expressed herein represent the opinions of Fort Pitt Capital Group and are not intended to predict or depict performance of any particular investment. All data provided by Fort Pitt is for informational purposes and should not be construed as investment advice. Fort Pitt does not provide tax advice.

Nathan Boxx, Bradley Newman, Jason Seltzer

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