This Week In Your Wallet: How To Lower Next Year’s Tax Bill
Happy Tuesday! Or should I say Happy Tax Day? All right, we all know it isn’t really Tax Day, but it’s sure been feeling like it for the last week or so — particularly if you live in a state like New York or California with high state and local income taxes or a jurisdiction with high property taxes. I do, for the record, which is why — like many of you — I’ve been focused on what I can do now to lower next year’s tax bill. As Ron Lieber nicely lays out in this morning’s New York Times, there are three maneuvers to consider — two of which may work and one that won’t.
- Maneuver 1: If you file quarterly taxes, you can prepay for the final quarter of this year even though it’s not due until mid-January.
- Maneuver 2: You can look into prepaying property taxes for the coming year. This may or may not be allowable depending on there you live. Call your tax assessor (I struck out on that one).
- Maneuver 3: If you’re sitting on some cash, you may be thinking about prepaying those same taxes for more of next year. That you can’t do. The new bill blocks you from taking a deduction for that this year.
Now, one more date to keep in mind before we move onto the other news of the week…
We’ve received a couple of questions on required minimum distributions (RMDs). If you’ve celebrated your 70 ½ birthday this year, or someone you love has, then the following information is important to keep in mind: Once you hit age 70 ½ — if you own a traditional IRA — you must begin taking required minimum distributions from it. Skip this, and you could be looking at a 50 percent tax penalty on the distribution amount not taken.
We tell you this now because the deadline is December 31 (although first-timers technically have until April 1). But since December 31 falls on a Sunday this year, Maura Cassidy, vice president of retirement at Fidelity Investments, says to mark your calendars for December 29. As of press time, 61 percent of Fidelity customers haven’t met their RMD requirements — likely because many people aren’t even aware of them. Figuring out how much to withdraw each year can be confusing, especially since these RMDs include rollovers, SEPs and Simples IRAs (oh, my!). This RMD calculator might help. And to make life a little easier for next year, consider setting up automatic withdrawals to avoid missing the deadline.
Many Happy Returns
Maybe you haven’t finished your holiday shopping yet, but some people already have gift return policies on the brain. One of them is Edgar Dworsky, founder of Consumer World and a go-to source at this time of year. The site’s annual review of store return policies found that although some retailers have extended their return windows, a few have either shortened them or added re-stocking fees.
Here’s the rundown: Macy’s shortened its standard returns window to 180 days — but items like Apple phones and high-end designer pieces have shorter windows. Also, Best Buy added a 15 percent restocking fee for some items that have been opened but aren’t defective — like built-in appliances, drones, DSLR cameras and lenses. As always, it’s best to go in with a receipt (if you weren’t given one and are close enough to the giver, ask), make sure that you’ve kept all the original packaging and, if we’re talking clothes, don’t take off the tags. You can see the report — and the fine print for different policies — here.
Avoid A Stress Mess
It might be the “most wonderful time of the year,” but for many, it’s also the most consistently stressful — especially when it comes to finances. One of the reasons that’s a problem: Our stress response works best for issues that last only a short period of time. It doesn’t work as well for money worries that last for weeks or months and — like about 65 percent of Americans — keep us up at night. In fact, more than an hour of stress per day could affect your physical and mental health, says John J. Medina, developmental molecular biologist and affiliate professor of bio-engineering at the University of Washington School of Medicine.
As for steps you can take to de-stress? First, make a list of all your financial worries. Then, rate each item by how in control you feel on a scale of one to 10. Circle the things with the highest numbers, says Medina — those are what you’ll focus on addressing. Next, take a few minutes to think about the people you trust most for support. A 2016 study out of Columbia Business School suggested that when people with money stress wrote down the names of three confidants, they were less likely to make poor short-term financial decisions. Tap into that support — then, use it to reassess the problem and make a game plan, says Sarah Newcomb, behavioral economist at Morningstar.
Ho, Ho, Hoping You Have A Very Happy Holiday
Finally, this the last newsletter you’ll get from us before the Christmas and Kwanzaa holidays. For all of you who are celebrating, we wish you wonderful times full of family, friends and all good things.
Have a great week,
Jean
