Benjamin Sullivan

It's tax return time. Make sure you're not only doing them right, but looking to save on future taxes.

Many people will find preparing their tax returns more challenging this year because of the new law. It’s the first year for returns under the Tax Cuts and Jobs Act, and even tax pros and the IRS are still catching up.

The law is supposed to simplify taxes, and indeed, far fewer taxpayers will be able to use itemized deductions under it. But there are some new wrinkles that complicate matters, even if you’re no longer itemizing.

Here are some key tips to prepare for your new tax return.

If you prepare your own return, double-check to make sure you’ve entered all numbers properly.  This is one bit of advice that never changes.

Not even tax software can be counted on to be 100 percent accurate this year. If your situation includes something a bit unusual, the software may not handle it right. For instance, I’ve seen income from state-tax refunds calculated improperly.

You may get less. People often hear the words “tax cut” and think it means a bigger refund. Employers, however, reduced the amount of tax withheld from paychecks last year. Since less was withheld, your refund may be about the same as last year’s. It may be smaller or larger. You won’t know until your return is done.

For many self-employed people and small-business owners, the new 20 percent deduction on qualified business income is straightforward. But it’s complex for high earners.

The new law creates a new type of income called qualified business income (QBI). The vast majority of people who are full- or part-time sole proprietors, including consultants, freelancers and even Uber drivers, are eligible for the QBI deduction. It’s also available if you have an interest in a partnership, S corporation or most limited liability companies (LLCs).

The deduction is available to all single people with QBI whose taxable income is below $157,500, or $315,000 for married couples filing jointly.  Above those thresholds, it gets complicated because taxpayers need to meet additional criteria to qualify for the QBI deduction. Above the phase-out zone, individuals with a specified service business do not qualify for the QBI deduction at all.

If your 2018 income exceeded the threshold, consult a qualified tax professional about how to deal with gray areas and take the actions needed to get the maximum legal deduction.

By the way, the deduction is a little less generous than advertised.  One-half of your self-employment (Social Security and Medicare) tax is deducted from your net business income to calculate the QBI on which the 20 percent deduction is figured.  There are also other adjustments, so by the time you get done, the deduction may be lower than 20 percent of what you think of as your business income. But it’s still a great deal.

Use your 2018 return to plan for long-term tax savings

Once you’ve completed your return, use it to create a strategy to reduce your taxable income in future years without reducing your actual income.  Tactics include:

		Decrease your earned income by contributing to your 401(k) or a similar plan.

		Reduce your adjusted gross income (AGI) by making a deductible contribution to an IRA or a qualified retirement plan for the self-employed.

		Decrease your taxable portfolio income by taking steps such as investing in tax-efficient mutual funds or ETFs.

		Reduce your taxable income.  One tactic is to make several years’ worth of charitable contributions in one year so that you’ll be able to itemize deductions that year instead of making nondeductible contributions over multiple years.

If your tax return is simple and you file form 1040EZ, for instance, you may be able to do it yourself, with or without software.  But if your return is more complex and you usually prepare it yourself using software, this year may be the one year you’ll want to hire a pro—especially if you have QBI.

A good tax preparer can provide you with peace of mind, ensuring that your return is prepared in compliance with the rules and regulations. A pro may even help identify tax benefits that you might miss with do-it-yourself software.

Anyone can legally offer tax services, but not everyone will do a good job. Look for a preparer with one or more of these credentials: IRS Enrolled Agent (EA), Certified Public Accountant (CPA) or Certified Financial Planner (CFP®).

Benjamin Sullivan, Certified Financial Planner (CFP®), IRS Enrolled Agent (EA), is a client service and portfolio manager with Palisades Hudson Financial Group’s Austin, Texas, office.  

He wrote the chapter on federal income tax in the firm’s newly revised book, “

Looking Ahead: Life, Family, Wealth and Business After 55

 is a fee-only financial planning firm and investment manager based in Fort Lauderdale, Florida with $1.4 billion under management. It offers financial planning, wealth management, and tax services. Branch offices are in Stamford, Connecticut; Atlanta, Georgia; Portland, Oregon; and Austin, Texas. Its 

 serves entertainers and professional athletes. The firm’s daily blog and monthly newsletter covering financial planning, taxes and investing are online at 

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Seemingly, creating your tax returns continues to only get more complicated and this year is no exception. Here are some tips to guide you through the process, and maybe even save for next year.

Five Tips for Preparing Your 2018 Tax Return and Saving On Future Taxes

To overcome paralysis and indecision, start out small.

Many people feel paralyzed about investing, especially if they’ve invested little or nothing in the market before.

Investors are bombarded with conflicting messages about whether the stock market will continue hitting new highs or is a house of cards waiting to self-destruct. If the experts are unsure, it’s understandable that the average investor can’t decide how or when to invest.

While people don’t want to miss out on future gains, they also don’t want to look foolish by buying at record highs before a crash. But looking at it that way almost guarantees procrastination. Short-term market moves don’t matter a lot.

Many people hold a misconceived notion that you have to jump in and out of the market at the right time. Even though the market can be a roller coaster, as long as you have a long enough time horizon, it’s worth the ride.

To overcome paralysis and indecision, start out small. Investing isn’t an all or nothing decision. Putting small amounts of money to work over time reduces your market-entry risk and is an effective way to conquer investor paralysis.

Diversification reduces risk and can increase your comfort level. While large-cap US stock funds should be a core holding, they’re not the only game in town. Investors should also invest in bonds, small caps, natural resources and real estate funds and include foreign stock funds in the mix. I recommend having about 35 percent of your equities in foreign stock funds.

Developing a long-term investment strategy and maintaining your investment mix regardless of market conditions is a better way to ensure success than trying jump in and out of the market.

Besides paralysis, here are some other common cognitive traps:

. This is the assumption that conditions created by a recent event will persist or recur into the future. Performance in the recent past is arguably the 

 useful information about an investment, but recent performance data is easy to understand and can be dramatic.

. In Garrison Keillor’s mythical Lake Wobegone, all the children are above average. Most investors believe they too are above average — and less overconfident than other investors to boot. If you’re convinced you are a mini-Buffett, you may put too much money in one stock that can’t lose. You may also try to time the stock market instead of sticking to a long-term plan. 

. Many people invest most of their money in areas they feel they know best, rather than in a properly diversified portfolio.

. Investors often feel the need to make a change to their portfolio when markets are falling. Inaction can feel neglectful or foolish, especially if everyone else is furiously taking action, but making changes on the fly is often the worst thing you can do.

. One of the biggest mistakes investors make is trying to trade based on a prediction everyone accepts. If you expect a recession based on something you read in 

l or heard on CNN, stay calm. That possibility is already baked into the current market price of investments. Trying to avoid the next market meltdown or identify the next hot market is a false hope.

Ben Sullivan, Certified Financial Planner (CFP©), is a client service and portfolio manager with Palisades Hudson in Austin, Texas.  He wrote the chapter on the topic in the book “Looking Ahead: Life, Family, Wealth and Business After 55.” More information is available at 

. Chapters on investor psychology and estate planning can be downloaded free. 

 is a fee-only financial planning firm and investment manager based Fort Lauderdale, Florida, with about $1.4 billion under management. It offers financial planning, wealth management, and tax services. Its Entertainment and Sports Team serves entertainers and professional athletes. Branch offices are in Stamford, Connecticut; Atlanta, Georgia; Portland, Oregon; and Austin, Texas.

The firm’s monthly newsletter covering financial planning, taxes and investing is online at 

www.palisadeshudson.com/insights/sentinel

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Contributions to your SEP-IRA and Health Savings Account are great ways to lower your tax burden.

Dentists: You can still reduce your 2016 tax burden, even with Tax Day almost upon us. Here’s what you need to do.

1. Contribute to your SEP-IRA by October 16

. A SEP-IRA enables self-employed dentists to defer up to $53,000, or 20 percent of your net earnings. Great news: There’s still time to make a contribution to your SEP-IRA to lower your 2016 tax liability. You can fund your SEP-IRA up until your income tax filing deadline. That includes extensions. This gives anyone who files Schedule C until October 16, 2017 to drastically reduce their 2016 tax bills.

2. Contribute to your Health Savings Account by April 18. 

 HSA Contributions lower taxable income, dollar-for-dollar. Account owners must have a high-deductible health plan with a maximum allowable out-of-pocket amount of $6,550 for an individual and $13,100 for a family to be eligible. HSAs have the added advantage of lowering taxable income. Distributions can be used for qualified medical expenses tax-free.

The annual contribution limit for 2016 is $3,350 for individuals and $6,750 for families. Participants age 55 or older can also make $1,000 of additional catch-up contributions. There are no income limits. 

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3. Deduct state and local sales tax if it’s greater than the income tax

. If you itemize deductions, you can choose to deduct either state and local income taxes 

 state and local sales taxes you paid in 2016. Take whichever results in the largest deduction. Sales taxes paid on your home or on building materials can also be included.

Click to the next page to read tips 4 and 5.

4. Don’t assume something isn’t deductible. Find out for certain. 

Check with an expert before you decide whether an expense is deductible. If you use a tax preparer, ask him or her. If you do your own return, use a reputable source to make the decision, such as the IRS website.

5. Don’t overlook one-time deductions. 

Most people know about annual deductions, such as state income and local real estate taxes, because they happen every year. But less frequent deductions, below, can be valuable. 

Theft, fire or other loss? You may be eligible for the casualty, disaster and theft loss deduction.

 First calculate the loss incurred from each casualty or theft event that occurred during the year, net of any salvage value, insurance or other reimbursement. And then subtract $100 per event. Now you have your net loss. You can deduct the net losses that exceed 10 percent of your adjusted gross income.

Have you made energy-efficient improvements to your home, such as insulation, energy efficient windows and doors, or certain roofs? If so, you' may be able to claim a credit for 10 percent of the associated costs, excluding installation costs. However, installation costs for certain high-efficiency heating systems, air-conditioning systems, and water heaters and stoves that burn biomass fuel can be deductible. There’s a lifetime limitation of $500, of which only $200 may be used for windows.

Residential energy efficient property credit

. Homeowners who make energy-efficient improvements to their primary residences can reduce their taxes by 30 percent of the cost of the qualified alternative energy equipment installed on or in their homes. Eligible are solar hot water heaters, solar electric equipment, and wind turbines. Unlike some credits, there is no dollar limit for most types of property, and any unused credit can be carried forward to the following year’s tax return.

Expenses related to job hunting, such as travel, resume printing and mailing, and some placement-agency fees, can be deducted if you searched for a job in your current line of work.

. Tax benefits for adoption include a tax credit for qualified child adoption and an exclusion from income for employer-provided adoption assistance.

A closing thought: We can't read your mind

. We tax professionals aren’t psychics. If you don’t tell us, we don’t know. Be sure you give your preparer everything that’s relevant. Ask if you’re not sure. That’s the best way to avoid missing a potentially valuable deduction.

Benjamin Sullivan, Certified Financial Planner (CFP®), Enrolled Agent (EA), is a client service and portfolio manager with 

 in Austin, Texas. Enrolled Agent is a designation granted by the IRS to tax preparers who meet its high standards. The firm handles hundreds of tax returns annually. 

Palisades Hudson Financial Group is a fee-only financial planning firm and investment manager based Fort Lauderdale, Florida, with more than $1.2 billion under management. It offers financial planning, wealth management, financial management and tax services. Branch offices are in Atlanta; Georgia; Austin, Texas; Portland, Oregon; and Stamford, Connecticut.

Tax Day is almost here. Though Tuesday, April 18 is just around the corner, there are still some things you can do to lower your 2016 tax burden. Options include contributing to your SEP-IRA, contributing to a health savings account, and deducting state and local sales tax, in certain instances.

It's Not Too Late: 5 Ways to Cut Your 2016 Tax Bill

Lots of things will change in 2017, but investor psychology won’t. It hasn’t changed since the 

 in the 1600s, or even since money was invented.

The roller coaster of the stock market makes for a lot of adrenaline, euphoria and fear — a recipe for bad decisions.

You can become a wiser, calmer investor if you know about the main cognitive errors investors make. You’ll be able to take a deep breath and hopefully stop yourself before making a costly mistake. 

Here’s a look at your brain on investing. 

After the financial crisis of 2008-2009, most investors bailed out of stocks — precisely the wrong move. 

This is a great example of the recency bias — the assumption that conditions created by a recent event will persist or recur into the future.

We’re all prone to pay undue attention to recent news, either good or bad, and underemphasize long-term trends. Performance in the recent past is arguably the 

 useful information about an investment. But recent performance data is easy to understand and dramatic.

Hot funds or stocks aren’t guaranteed to keep going up. The opposite is often the case.  Securities that have plummeted aren’t a sure thing to go lower.

The human brain seeks to identify patterns and see events as part of a pattern even when they are not. It can be easy to buy into an illusory meaning and subsequently make choices based on recent data that is ultimately irrelevant. 

Overconfidence — the “Lake Wobegone” Effect

,” all the children are above average. Most investors believe they are above average — and less overconfident than other investors to boot. 

If you’re convinced you a mini-Buffett, you may put too much money in one stock that can’t lose. You may try to time the stock market instead of sticking to a long-term plan.

Many people invest most of their money in areas they feel they know best rather than in a properly diversified portfolio.  

A banker may load up on bank stocks, or invest in CDs only and avoid equities. A programmer may overinvest in tech stocks. The known feels safe. The unknown feels risky. 

Investors often feel the need to make a change to their portfolio when markets are falling. Inaction can feel neglectful or foolish, especially if everyone else is furiously taking action.

But it’s often the worst thing you can do.

On the other hand, investors often hold onto losers too long to avoid acknowledging an investing mistake. Instead of bailing out after a stock has lost 10 percent or 20 percent, they can’t pull the trigger until it’s been decimated.

Note: It doesn’t matter at what price you bought an investment. That’s the past. Only the potential 

 return on the investment and the associated risk should matter when deciding whether to hold or sell an investment.

Beating the market once in a while isn’t hard. Doing it consistently is almost impossible.

One of the biggest mistakes investors make is trying to trade based on a prediction everyone accepts. 

If you expect a recession based on something you read in the 

 or heard on CNN, stay calm. That possibility is already baked into the current market price of investments.

Trying to avoid the next market meltdown or identify the next hot market is a siren song for all investors. But professional investors are collectively unsuccessful when they try to time the markets.

If some guru really had magical powers to predict the market, would he or she tell the world?  Or would that person keep it a secret and make an enormous fortune?

Sticking to the Plan Avoids Emotional Whiplash

Emotion and spontaneity make life fun. But in investing they’re your enemies. Data and planning are your friends.

Create a written investment plan and to stick to it. Focus on long-term results and include eventualities like a market downturn or a major investment failing.

By considering such problems as hypothetical situations, you can avoid the temptation to react emotionally in the moment.

Setting up a plan removes the need to rely on yourself to remain unbiased and unemotional while the market is plummeting.

We all make mistakes, but a plan that accounts for foreseeable problems can help protect you from avoidable missteps.

If you know you can’t stay disciplined, hire someone else to manage your money.

Benjamin Sullivan, Certified Financial Planner (CFP®) is a portfolio manager with 

Palisades Hudson Financial Group in its Austin, Texas

Palisades Hudson Financial Group (www.palisadeshudson.com) is a fee-only financial planning firm and investment manager based Fort Lauderdale, Florida, with more than $1.2 billion under management. It offers financial planning, wealth management, financial management and tax services. Branch offices are in Atlanta; Georgia; Austin, Texas; Portland, Oregon; and Stamford, Connecticut.

You can become a wiser, calmer investor if you know about the main cognitive errors investors make. Youâ€™ll be able to take a deep breath and hopefully stop yourself before making a costly mistake.