Last December, Republicans in Washington passed the biggest changes to the U.S. tax code in decades, and while most of the really significant alterations were made for businesses (hello, corporate tax cuts!), there are plenty that will directly affect what ordinary Americans will pay to Uncle Sam. Based on analyses done at the time, a large fraction of the middle class will find their annual tax bills shrinking a bit, but another significant share is on course to owe a lot more.

As we approach the end of 2018, Motley Fool Answers hosts Alison Southwick and Robert Brokamp want to help you get a jump on tax season, so for this episode of the podcast, they've brought an expert into the studio: Megan Brinsfield of Motley Fool Wealth Management. Together, they'll run through the changes in the tax code that are most likely to affect your bill -- for good or ill -- and offer up some strategies you can still use, even this late in the year, to reduce what you'll owe in April. Plus, they share some bizarre tax trivia -- yes, that's totally a thing. But first, there's a timely "What's Up, Allison?" segment on the stock market's "October Effect": Is it a real phenomenon or a financial mirage?

A full transcript follows the video.

This video was recorded on Oct. 16, 2018.

Alison Southwick: This is Motley Fool Answers! I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool. Hello, Bro!

Robert Brokamp: Hello, Alison!

Southwick: Today we are going to welcome Megan Brinsfield into the studio to offer up some end-of-year tax guidance. You're like, "Wait, the year isn't even close to being over, but no!"

Brokamp: It sort of is.

Southwick: Is it?

Brokamp: Yes. I counted. We have less than 11 weeks left in the year.

Southwick: But most people don't start thinking about their taxes until six months from now.

Rick Engdahl: But Bro's already listening to Christmas music, so...

Brokamp: That's true. I listened to Christmas music.

Southwick: That's true. All right, we digress. The point is that we've got Megan Brinsfield on the show to offer up some end-of-year tax guidance because you are so good with your money you are already worrying about your taxes, and that's what we love about you Motley Fool Answers listeners. All that and more on this week's episode of Motley Fool Answers.


Brokamp: So, Alison, what's up?

Southwick: Well, Bro, we just had a heck of a fright. On Tuesday, the Dow dropped 800 points, the most since February. Do you remember that horrible day in February?

Brokamp: I do remember that horrible day.

Southwick: Do you really?

Brokamp: Yes, I do!

Southwick: OK, I don't. Anyway, because this is being taped in the past and you, dear listener, are in the future, I can't even begin to fathom what calamity has hence ensued. Cats and dogs living together. Total anarchy. But, should we be surprised? After all, it is October, which means the "October Effect" is in full force. Yes, the October Effect. Have we talked about this on this show before?

Brokamp: I don't know, but I will say that one of the first three articles I wrote for The Motley Fool back in 1999 was on this very topic, but let's hear your take on it.

Southwick: Here's my hot take on the October Effect. Do you remember whether it's a real thing or not? Because that's what we're going to talk about.

Brokamp: I know that some of the worst days for the stock market have happened in October.

Southwick: Oh, have they? So here we go. The October Effect is the idea that October is just a particularly bad month for the stock market. It's also known as the "Mark Twain" effect. Did you know that?

Brokamp: I didn't know that.

Southwick: It comes from the line in Mark Twain's Pudd'nhead Wilson, which means I get to break out my Southern lawyer voice.

Brokamp: Oh, I can't wait!

Southwick: "October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."

Brokamp: Very good!

Southwick: Thank you! Basically, October is where it's particularly dangerous to speculate in stocks, as is every other month in the year. That's why they also call it the Mark Twain effect. But seriously, let's look at October! The Panic of 1907 happened in October.

Brokamp: I don't remember that one at all.

Southwick: That was a thing. Black Thursday and both Black Mondays happened in October in 1929 and 1987. The 2008 Great Recession kicked off in October. According to Zero Hedge, five out of the 10 worst days in the market happened in October.

But, downturns in 1987, 1990, 2001, and 2002 all bottomed out in October. In fact, the same day that the market just fell 800 points in October, it was the anniversary of when the Dow Jones bottomed out in 2002, having fallen 38.75% from its 2000 high.

Investopedia says that from a historical perspective, October has marked the end of more bear markets than it has acted as the beginning, so maybe October means it's actually a good thing to celebrate. Maybe we should take a look at some of the other months like, say, September!

Brokamp: Which is worse!

Southwick: It is! September is statistically the worst month for investors, according to many researchers, including Yardeni Research. September has had 47 down months compared to 39 up months since 1928 and on average investors lose 1% in September and the average monthly return in October is 0.4%. The best month, on average. Do you want to guess?

Brokamp: It's December, I think. December or January.

Southwick: It's actually July!

Brokamp: July!

Southwick: July is at 1.6% on average and December, you're right, is 1.4%.

Brokamp: There's an old adage called "sell in May and go away," where you're supposed to stay out of the market for a certain number of months. You do miss July, but the question was if I sell in May, when do I get back into the market? If was often Halloween when you get back in. It actually had some mixed results, but because you miss some of those really bad markets, "sell in May and go away" looked pretty good depending on what year you were looking at.

Southwick: Let's dig into some research about whether the October Effect is just a silly superstition or not, because a lot of people will say this is... whatever. Now some will go so far as to say there's something there, but it's mostly a self-fulfilling prophecy. We say it's an adage and so people actually follow it; therefore, people are investing and therefore the markets do fall.

I did see an article in the BBC where they spoke with Lily Fang. She's a professor at MIT and she blames the fact that all of us are coming off of our summer highs and when the reality of fall sets in, our bubbles burst. Essentially all of the people who spend their time obsessing over the markets go on holiday over the summer, and so they are delaying their reaction to market uncertainty until they get back to work in September and then they're like, "Oh, that's right! While I was on the beach drinking mai tais, everything's awful now."

So Dr. Fang and her colleagues have tested their thesis by looking at differences in school holidays in 47 countries and they found that the returns are, on average, 1% lower in the months after a major school holiday. Their basic conclusion is that there is some market inefficiency because many professional investors are just plain absent from the market and on a yacht, I assume. I don't know what they do with their time.

Writing for The Wall Street Journal, Jason Zweig blames the "availability bias," and that's the human tendency to judge how likely an event is by how easily we can recall vivid examples of it. So the horrific losses of October 20th, 2008 are hard to forget. Any day with the word "black" in front of it is kind of hard to forget; whereas, the milder gains of 7% in October of 2015 and 11% in 2011 are hard to remember.

Zweig also pointed to research that fall just generally makes us sadder and less optimistic, so average returns on U.S. treasuries appear to be higher in fall than in spring, suggesting that investors are seeking safety in darker months. Stock analysts' earnings forecasts are less optimistic in fall and winter than they are in summer and spring.

All that's interesting, but what should we do about it whether there is an effect or not? I'm going to go to Warren Buffett for his advice.

Brokamp: Sounds good to me.

Southwick: Sounds like a good guy. Now I'm going to offer some of his advice, all of which Motley Fool Answers listeners have heard before, but it's worth reminding you of because, again, you're in the future and I have no idea what hellscape of financial disintegration you are currently living in five days from the taping of this episode. It could be bad, Rick. We don't know.

The first piece of Warren Buffett advice is that the most important quality for an investor is temperament, not intellect. We here, at The Motley Fool, often preach how you need to be able to ride out the storm and keep calm, and carry on, and that good stuff; and if an 800-point drop in the Dow is keeping you from sleeping, then maybe you need to pull back your exposure in the market. Did I get that advice right?

Brokamp: That's pretty good.

Southwick: And, of course, there's Warren Buffett's advice of being fearful when others are greedy and to be greedy only when others are fearful. We here, at Motley Fool Answers, don't necessarily like the idea of timing the market, but I know there are some analysts here at The Motley Fool who maybe have stocks on their watchlist that wouldn't mind getting it a little bit on sale.

And my final piece of Warren Buffett advice is that the stock market is a device for transferring money from the impatient to the patient, by which we mean, of course, that we don't want you to be buying and selling stocks and always in the month of October and the patient investor holds on for the long term because, after all, in the long term the stock market tends to go up and to the right, which we like.

Brokamp: That's right.

Southwick: Do you want to offer any other additional advice?

Brokamp: No.

Southwick: OK. So let's go back to that Pudd'nhead Wilson quote. "October. That is one of the peculiarly dangerous months to speculate in stocks." Yeah, I would agree. It's always kind of a bad month to speculate in stocks, by which I mean, of course, making short-term bets and day trading, but long-term, bottoms-up investing in companies you believe in; well, that's always in season. And that, Bro, is what's up!


Brokamp: It's October, which means we're 10 months into the Tax Cuts and Jobs Act...

Southwick: Yay! You said that with such enthusiasm.

Brokamp: Tax Cuts and Jobs Act! Yay! Anyway, the newest tax law that was passed at the end of 2017. Hopefully you're among the majority of Americans who have, indeed, seen a lower tax bill likely around a few hundred dollars to maybe a couple of thousand dollars if you're a typical American household. Unfortunately, there are households that will end up having to pay more tax due to a loss of some deductions which we'll talk about in a little bit. But regardless of your situation, there may be some steps you can still take to reduce this year's tax bill before 2019 rolls around, and here to help us discuss these strategies is our resident tax expert, Megan Brinsfield of Motley Fool Wealth Management...

Southwick: A sister company of The Motley Fool.

Brokamp: Yeah, there you go! I thought before we talk about the tax tips, maybe we should just hit, as a reminder, some of the highlights of the new tax law. First of all, there's still seven tax brackets, but lower overall rates except for the bottom two, and it takes more income to move up to a higher tax bracket. So in that sense, most people probably will be paying less taxes.

The big thing is a higher standard deduction -- $12,000 for singles and $24,000 for married folks -- which will probably drop the percentage of people who itemize from one-third in 2017 down to maybe 10% this year. The vast majority will not itemize.

Megan Brinsfield: Itemizing was already something that few people did, and now even fewer will do it.

Brokamp: There's elimination of many assorted deductions. Too many to list, but some of the more common ones were unreimbursed employee expenses, tax prep expenses. So, Megan, and all your CPA colleagues. Moving expenses. A lot of those things have just gone away.

Also the elimination of exemptions, but the expanded child tax credit, which is good. And perhaps one of the more controversial is the limitation on the SALT deduction [the state and local taxes deduction]. Now the total amount that you can deduct is $10,000 per year. And this is probably one of the bigger reasons why some people will be paying higher taxes this year than last year.

Brinsfield: Exactly. You hear a lot of cries from higher tax states. People living in places like California or New York where they're paying 10% annually in taxes and they have to, in general, earn a lot to live in those places. So they would have had a much higher deduction under the old plan.

I just did my taxes last night. I am an extender and I was looking at how much benefit that provided me, and I'm by far not earning anywhere near what a lot of people in California and New York are, and so I can definitely feel that pain. The good news is that on the flip side, a lot of people who are itemizing are families that have kids and will benefit from a much higher child tax credit than has been seen in the past. The expansion of that was very large. So now if you're a married couple, you can have up to $400,000 of income before your child tax credit starts getting phased out and it used to be something like $110,000. So that's a huge band of people that that credit is now open to.

Brokamp: Just to be clear, when the law was passed at the end of last year, a lot of states tried to get around this limitation on the SALT deduction, but in the end none of those are going to work, right?

Brinsfield: Right. The IRS sort of squashed those workarounds with proposed regulations that they issued over the summer. And the workaround was the state would create this charitable entity and people could make charitable contributions, which are still deductible to an almost unlimited extent, and the state would then give you an offsetting credit for your charitable contributions to that fund.

And the IRS said, "No, that doesn't pass the smell test." You're getting services back equal to the amount that you're paying, which I'm sure someone, somewhere, could argue against. But it sort of put an end to those potential workarounds that were alive and brewing for about six months.

Brokamp: A lot about the new law had to do with corporate tax rates, as well. We're not going to get into those. We're going to talk mostly about individual tax rates. That said, for those who are business owners, one big change was the 20% pass-through deduction. What exactly was that and is that? I know there was some confusion about it and there was relatively recently some clarification about who can take that and who can't.

Brinsfield: The biggest thing is that it defines pass-through entities a bit more broadly than it has in the past among tax professionals. It used to be things like LLCs, S corporations, and partnerships were pass-through entities. Now under this law you're actually adding in sole proprietorships, which are people who basically never bothered to set up a business entity and allows them to deduct 20% of their net income, assuming they don't make too much.

This is a place where what is earned inside the business actually coordinates with everything else you earn on your return and if you're mad at your spouse for messing up your taxes, they can do it particularly well in this area, as well, because you're looking not only at business income, but if your total income exceeds a threshold [I think it's $157,000 if you are single and $315,000 if you're married], if you have a high-earning spouse that can kick you out of being qualified to take this deduction on your business.

Brokamp: I seem to recall reading that after this was passed, there were some people who were thinking "I'm an employee now, but I love the idea of this 20% deduction on everything I earn. Maybe I'll just become an independent contractor and take this." But that also has been somewhat squashed, right?

Brinsfield: I don't think it's been as formerly squashed as it has been just impractical. Being an employee or a contractor comes with different assumptions around the work that you're doing and who has control over your time and who's responsible for a lot of expenses.

So if you say, "I want to be a contractor," suddenly you're signing up to take care of your own healthcare, computer, and work expenses that might have been covered by your employer in the past, and that's not necessarily going to equal out with this deduction going forward. The other thing is that the law says if you have a business that is solely relying on your skills, you can't really separate yourself from the business entity; then you're even further limited in taking this 20% deduction.

Brokamp: Do you know what I think it would be time for, Alison?

Southwick: What's that?

Brokamp: How about a fun tax fact?

Southwick: Hey! That's a great idea and I just happen to have one for you!

Brokamp: Excellent!

Southwick: For this fun tax fact, we are going to go to Russia. So Czar Peter the Great was born in 1672 and he worked very hard to westernize Russia during his reign. And part of that was getting men to shave.

So apparently he went on this big tour of Europe and he comes back, they're having this party, and they're like, "Oh, Peter! We're so glad you're back!" And he's like, "Oh, my God, I'm so happy to see you, too!" He gives all these noblemen of Russia a big hug at this party and then proceeds to take out a pair of scissors and snips off their beards. He was like, "Yeah, we're done with that here." He really didn't like beards.

So what other way to encourage men to shave than to tax beards.

Brokamp: Really?

Southwick: Yes, so he put a tax on having a beard. An impoverished beggar could retain his beard for a yearly sum of two kopeks while a well-off merchant would have to pay 100 rubles to keep his beard. And then once they paid their money, they would be given a small coin to carry around that said, "tax paid." The metal also said, "The beard is a useless burden." So despite the fees and widespread unpopularity, because prior to this having a beard was actually a very big, manly thing to have in Russia, this tax remained in place until 1772 -- 47 years after Peter's death.

Brokamp: So as an infrequent shaver, was there a stubble tax? Did your beard have to be a certain length for it to qualify as the beard?

Southwick: I don't know.

Brokamp: You don't know!

Southwick: I'm sorry!

Brokamp: I'll have to dig further into Russian facial hair history to find that one.

Engdahl: That would be like a hipster tax today. I like it!

Brokamp: So before we get into the year-end tax tips, a little bit about what I think is one of the big planning opportunities, thanks to the tax law, and that is because we have such lower tax rates, to me a Roth retirement account makes more sense than ever. When you contribute to a Roth, you're giving up the tax break today in exchange for taking out your money tax-free in the future. I certainly think that's something to consider changing in terms of your contributions, but also maybe converting some of that money to a Roth. Are you seeing that in what you guys do in Motley Fool Wealth Management?

Brinsfield: Yes, absolutely. We've had a lot of retirees, actually, reach out to us and say I've heard you guys talk about Roth. I didn't think I had the opportunity before because I was in such a high tax bracket and with this alleviation of my tax bracket, maybe I can consider it now. So we are seeing a lot of people that are converting more than they thought they would or entertaining it as an option where it wasn't before.

Brokamp: Right. The other benefit of Roths is that in a Roth IRA, there are no required minimum distributions, a topic we'll get to later on. Then you can just leave the money tax-free. You don't have to start taking that money out at 70 and a half.

One thing about the new tax law is that in the past, when you converted to a Roth, you could change your mind by October of the following year in something called a "recharacterization." You can't do that anymore, so if you're going to convert, you've got to make sure you really want to do it and you have the money to pay the taxes. Because when you convert, you do pay taxes on that conversion.

Brinsfield: And that's flipped our traditional advice on its head a little bit, because we used to say, "If you're going to do a Roth conversion, do it in January and then you have 20 months to see how it does and maybe reverse course if you decide it wasn't a good decision." Now we're telling people to wait until the end of the year when they're more certain about the rest of your income so that you don't accidentally push yourself into a higher tax bracket.

Brokamp: Let's move into year-end tax tips, unless we have a funny tax fact to hit first.

Southwick: Oh, we sure do, and this time I'm going to take you to China. So while most countries tax cigarettes in order to prevent smoking, in China one province decided to do the opposite.

Brokamp: Just what we need is more smokers.

Southwick: That's basically it. And here in the Hubei province in China, they decided to require people to smoke a quota of cigarettes or risk paying a fine. The goal is because there are many local cigarette manufacturers and so they wanted to prop up the economy and also have people pay the taxes on those cigarettes, as well.

So teachers had a quota to smoke, and one teacher was saying how there would be people that would come by and check ashtrays, and if your ashtray had cigarettes in it from cigarette manufacturers outside of the province, you would get fined.

Brokamp: What?

Southwick: So that's what they did. They taxed people to try to get them to smoke more. One out of every three cigarettes [fun fact] in the world is smoked in China according to the WHO. So smoking over there is a pretty big deal thanks to taxing people to do it more. There you go!

Brokamp: Well, that is a fun tax fact.

Southwick: Isn't that fun?

Brokamp: Let's talk a little bit about what you can do before the end of the year. Here are some things you can do to hopefully lower your taxes by December 31st. I'm just going to tick off a few of these. Probably you're familiar with some of them. Contribute to a traditional 401(k) or a similar employer-sponsored plan you have until the following year's tax deadline to contribute to an IRA, but you have to contribute to your 401(k) by December 31st.

Contributing to a 529, as long as you use it for qualified education expenses, comes out tax-free. You don't get a federal deduction, but depending on your state, you might get a deduction and for some states, you don't even have to contribute to the state plan. You just get a deduction for contributing to the plan. And furthermore, as part of the new tax law, now up to $10,000 a year from a 529 can be used for not just college, but elementary and secondary school expenses. So the tax law has expanded the ways you can use a 529.

Charitable contributions. Megan, maybe you can talk a little bit about that. First of all, you have to itemize, so for a lot of these people, they really won't get much tax benefit from charitable donations. Am I correct on that?

Brinsfield: Yes. If you're on the bubble between itemizing and not, the charitable deductions you're going to see some zone where you're not getting a full benefit. And that's unfortunate, because a lot of people do contribute for the tax benefits.

Brokamp: Now there's one way you can try to get a benefit from that, and that is like lumping or bunching your contributions together in one year.

Brinsfield: Right. I like talking to people about lumping and bunching. It sounds like a really fun party technique.

Brokamp: It's a bonus tax bracket.

Brinsfield: Let's say you're capping out at your $10,000 of deductible state and local taxes and your only other deduction would be charitable contributions. What you might want to do is perhaps not make any charitable contributions one year and then double up the following year so that you are getting benefit from the standard deduction, which is higher in one year and maximizing the use of your charitable deductions in the next year.

We have actually seen this quite a bit with our clients in Wealth Management. That they might utilize this bunching technique by contributing to a donor advise fund, which is kind of frontloading a bunch of charitable contributions in one year and then you can dole out from that fund over time to the charities of your choice.

Brokamp: One thing that you can do, whether you have itemized or not, is to donate appreciated stock. Talk a little bit about the benefits of doing that. We're talking about a stock that is outside of a retirement account.

Brinsfield: So if you hold a stock outside of a retirement account and it is also been held more than one year, you have this long-term capital gain that's built in and when you donate that stock to a charity, you can take the fair market value as a deduction. That is opposed to selling the stock, recognizing the gain, paying the tax on the gain, and donating the net cash.

So a lot of people -- their hang-up with this is if they have a position that they've held onto and they've seen it run -- like seeing that in their brokerage account. I like having Berkshire (NYSE: BRK-A) (NYSE: BRK-B) and being able to see its growth. And what we recommend for those folks is doing a donate-and-replace strategy, where you are donating the stock and getting the deduction at the full market value...

Brokamp: And again, avoiding the capital gain...

Brinsfield: ... avoiding the capital gain and then rebuying the stock at the same price where you donated it. You are basically getting this free step-up in basis when you do that.

Brokamp: Another thing people have to think about for the end of the year is required minimum distributions from traditional retirement accounts by the time you're age 70 and a half. It's something that you should keep in mind. If you have several IRAs, you only have to take the RMD from one IRA, but if you still have 401(k)s or anything like that, you have to take the RMD from each individual account.

Brinsfield: And if you have a Roth 401(k) sitting out there and you're over 70 and a half, that also applies to your RMD.

Brokamp: Right. Then the way to get around that would be just to transfer it to a Roth IRA.

This is just something to avoid, and that is if you're thinking of buying an actively managed mutual fund outside of a retirement account, this is the time of year when mutual funds make their capital gains distributions and you have to pay taxes on those gains whether you've owned the fund for 10 years or 10 days, and you don't want to be paying capital gains taxes on a fund that you've only owned for 10 days.

So if you're going to buy an actively managed fund -- index funds and ETFs probably not so much, but really any fund -- if you're thinking of buying outside a retirement account at this time of year, it's a good idea to contact the fund company to see if they plan. They often will have estimates of what gains distributions are going to make.

Always a popular topic at this time of the year is tax-loss harvesting. It's essentially selling an investment at a capital loss. It could be a stock, but it could be a bond, and definitely for the last year and maybe even two years depending on the bond you own, they could be down. Sell it at a loss. Get that capital loss. It can offset gains or up to $3,000 of ordinary income. That's the basic idea.

You, I'm sure, have seen this in action quite a bit. And one thing that trips people up, of course, is the wash-sale rule, for example.

Brinsfield: Right, the wash-sale rule where you just have to watch out for repurchasing those stocks within a 30-day window before and after.

Brokamp: But the workaround that. You can't sell it in your taxable account and then buy it in your IRA. Or buy an option on it. There are lots of ways that people get around it, but a lot of the time that will trip you up.

Brinsfield: Or even you sell it and then you have your spouse buy it in their account. That's also something that the IRS doesn't like. I think a lot of people probably overestimate the value of tax-loss harvesting. That you could potentially be out of the market for a period of time and essentially what you are doing is you're deferring tax, but it might not be that valuable, depending on your tax rate.

So I think it's important to take a look at the overall picture. If your portfolio needs to be rebalanced and that involves selling some positions at a loss, certainly go ahead and do it. But a lot of the targeted tax-loss harvesting that's being done is lowering your cost basis for the future where tax rates might be higher.

Brokamp: Right. One thing people don't appreciate so much is tax-gain harvesting. What is that?

Brinsfield: I love gain harvesting because there's this window of opportunity in the tax code where you can recognize long-term capital gains at a 0% tax rate, and that's not a very common tax rate. So married couples can have up to $101,400 of total income and still get this 0% long-term capital gains rate. I think people assume that they have to have this low income in order to get this gains-harvesting benefit, but that's not true. You can actually have a pretty substantial income and still reap those benefits.

Brokamp: And there's no wash-sale rule on that. You can sell it for a gain today and rebuy it tomorrow, and you're still realizing that 0% long-term capital gain. That said, the more you sell, the more that does push you up. At some point you could sell so much that some of those gains will be taxable.

Brinsfield: Right. If you go over that threshold, anything over that threshold is going to be subject to the next bracket up, which is 15%.

Brokamp: But the stuff below that threshold is still tax-free, essentially.

Brinsfield: Exactly.

Brokamp: Depending on where you work, you might have a December 31st deadline on spending the money in your flexible spending account, so that's definitely something to think about. If you don't have one, this also might be the time of year to consider opening one because this is open enrollment season for a lot of folks.

Brinsfield: Exactly, and I'm a big proponent of the flex spending account, so when fellow Fools come up and ask me about what are benefits that not a lot of people use, I think the flexible spending account is one that is very underrated. People say, "Well, I don't have that much in medical expenses. I don't know if it's worth it. I've got to collect receipts."

And the fact is a lot of people have "medical expenses" that could go through this flexible spending account program. There's a website called which we have no affiliation with, but it's fun to browse because everything on that website is eligible for purchase via your flexible spending account. So I got some Band-Aids, and a first aid kit, and sunscreen. It's fun to do a little shopping spree on there.

The other thing with flexible spending accounts is that you have to earn a lot more after tax than you think. Let's say you live in a state that has no tax and you're in the 24% bracket. The equivalent of getting $100 in your flexible spending account is earning $150, paying taxes on it, and then going and buying it. So when you multiply that out and see that you can have like $2,500 in your flex spending account, that really adds up quickly.

Brokamp: Well, that does sound like fun looking at that website.

Brinsfield: Have I convinced you?

Brokamp: You convinced me, but maybe not as fun as another fun tax fact.

Southwick: Hey! This time we're going to Sweden. In Sweden, people are required to have their children's name approved by the Swedish tax agency before the child turns five. If the parent doesn't do it, they will be fined $5,000 krone which is about $770. The law was originally put in place in 1982 to prevent citizens from using royal names, but the law states that the rationale is that by approving a name, the tax agency can protect the child from an offensive or confusing name.

So you cannot name your kid Ikea or Allah in Sweden; but they recently approved Google (NASDAQ: GOOGL) (NASDAQ: GOOG) and Lego. So just name away.

Brokamp: Obviously when you do your taxes, a lot will depend on how much you've had withheld throughout the year. That will determine whether you get a refund or whether you have to pay any. A recent GAO study found that so far this year they estimate that only 6% of people are withholding the right amount, and by right amount they were within about $100 of what they should be. Most people are having too much withheld, but a large proportion are not having enough withheld.

So my first question for you, given that we only have about 11 weeks left in this year, do you think it's worthwhile for people to look at their withholdings for this year and try to change anything for these last couple of months?

Brinsfield: I think it could be. People that are going to be most affected by this change that we've seen this year; the TCJA also changed how employers are required to withhold tax and for many people that happened seamlessly. They were just using their old records on file maybe when they started and persisting those deductions into the future, and that can really hurt if you're someone who used to itemize a lot, because that means under the new tax code, we're assuming that you're going to be taking deductions that you don't actually qualify for anymore.

Those are the people who are most likely to need an adjustment, here, at the end of the year in order to get themselves up to speed on the tax that they probably should have been paying throughout the year.

That being said, I think a lot of times it's really just a matter of housekeeping. Checking in on that W4. It's a really fun form, at least for payroll people. Just checking it and making sure it still makes sense. And if you've gotten married. If you've had kids. If you just haven't looked at it in a while, kind of doing a sense check on that.

Brokamp: How much do you have to underpay for you to worry about penalties? No one really wants to underpay because then come April 15th and you have to pay money. But how much does it have to be before you to have to pay penalties on top of that?

Brinsfield: You have to underpay less than 90% of what you should have. So if you owe $10,000 in taxes but you only paid $8,000, then you would be penalized for the $1,000 shortfall that you had over the course of the year.

Brokamp: That brings us to the upcoming year. Whether or not you should look at your withholdings too closely for this year is somewhat debatable, but definitely come December you should be looking at what you're having withheld for 2019.

A couple of things that will probably be changing for 2019 -- they have not been officially announced -- is that the contribution limits on 401(k)s and IRAs will probably go up because they are adjusted in increments based on inflation. We actually saw some inflation this year, so based on some analyses I've seen, we should expect those to go up. That's something to consider and budget for, for the upcoming year.

And those aren't the only things that are adjusted for inflation. The standard deduction is tax brackets. All kinds of things do go up, so that is one thing that will change your taxes. Anything else that's significantly different, though, for 2019?

Brinsfield: One of the big things that was kind of a delayed implementation from the tax plan was removing the mandate for Obamacare. So under the old tax plan, if you did not have adequate health insurance for the year, you had to pay a penalty for that, and going forward that will not be the case. You can live free and easy and assume you're going to be healthy forever and not get insurance and not be penalized for it outside of maybe judgmental stares.

And the other thing that is coming around the bend is that anyone who actually files a paper tax return will notice a difference in how that paper looks. It's a smaller form, now. It's called the "postcard 1040." I've never wanted to send my information for taxes on a postcard, so I don't know what's driving this, but if you print out the actual form, you'll see that it's smaller and more condensed. It actually results in a lot more schedules behind it, so if you already had a really fat tax return, if you printed it out it's going to be even fatter.

Brokamp: And it's kind of a symbolic thing, really, because something like 90% of people file electronically, but if you are that person who prints things out or walks to the library to get their form, at least the main paper is postcard size.

Brinsfield: Yes.

Brokamp: Do we have another fun tax fact?

Southwick: For our final tax fact, I'm taking you to Kansas. What an exciting journey we've been on. In Kansas, untethered balloon rides, where the balloon is actually piloted somewhere, would be considered carrying passengers and tax-exempt; but if the air balloon is tethered and just goes up and then comes right back down, it is taxed.

Brokamp: What?

Southwick: I told you I didn't have a strong one to end on. I didn't know how many of these you'd need. Also in New Mexico, if you're 100 years old you don't have to pay income taxes.

Brokamp: At all.

Southwick: At all.

Brokamp: So if you're almost 100, look to moving there to save some taxes.

Brinsfield: I think we'll see a great migration of centenarians.

Southwick: So that was my last tax fact. Sorry it wasn't the real stunner. But hey, Megan, thank you so much for coming! It was great to have you on the show!

Brinsfield: Thank you! It's great to be here!


Southwick: Well, that's the show, but before we go I have a special request of our listeners because, Bro and Rick, you know it but I'm in the middle of moving.

Brokamp: One of life's most joyous occasions.

Southwick: It is so great. Buying a house. Selling a house. Moving. It's all awful!

Brokamp: Packing up all your stuff and then a couple of days later taking it out of the box again.

Southwick: And just literally burning money for the privilege of being miserable for two weeks. It's awesome! It's so exciting! So I want you, our Motley Fool Answers listeners, to give me your best advice when it comes to selling your home, buying your home, and moving and we'll just include it on the show in a future episode and it will also help me in my current situation. Which is exciting but also awful and terrifying and I hate it.

Engdahl: If anyone wants to throw in any extra advice on renovating, that would help me out.

Southwick: Oh, yeah! Rick's going to do a massive renovation. So send me your advice and send Rick his advice about all things having to do with a home: buying a home, selling a home, moving, or doing your renovation. Our email is You can also send us your random questions that you might have for our upcoming mailbag episode. There's always one upcoming.

And, of course, if you have any postcards left over from your travels, please send them on in. Our address is 2000 Duke St., Alexandria, VA 22314. We love getting your postcards. Bro is also currently accepting Christmas cards and holiday cards, as well, because he's already listening to holiday music on his headphones at work, aren't you? Admit it!

Brokamp: It's always the most wonderful time of the year in my head.

Southwick: Well, the show is edited taxingly by Rick Engdahl. For Robert Brokamp. I'm Alison Southwick. Stay Foolish everybody!