This year marks the first in decades with massive tax law change, creating uncertainty and potential tax surprises at year-end. Don’t let this happen to you. Steer away from tax bill surprises by reviewing these important considerations:
Will you itemize in 2018?
Anyone who itemized deductions in 2017 will find they may need to change their strategies in 2018. That’s largely due to the major standard deduction increase, from $6,350 to $12,000 for single filers and $12,700 to $24,000 for married couples filing jointly.
Your ability to itemize may be most affected if in the past you relied heavily on the state and local tax deduction, home equity interest deduction, and miscellaneous itemized deductions. That’s because these deductions have been suspended, eliminated or minimized in 2018.
It’s possible you will still itemize deductions if you have a home mortgage, high medical expenses, charitable donations, and/or high property or state income taxes.
Other deductions impacted: In addition to the new world of itemized deductions, other tax changes will materially change your 2018 tax obligation. These include the elimination of exemptions, the suspension of moving expense deductions, and major increases in the Child Tax Credit.
Is charitable giving a priority for you?
The standard deduction increase will likely prompt many taxpayers who will no longer benefit from itemizing to adjust their charitable giving tax plan this year.
The good news is that beneficial tax treatment for donating is still available . . .it’ll just require a bit more planning. Consider this new bundling approach:
- Figure out how close you think you’ll come to your 2018 standard deduction threshold. Account for your typical charitable contributions when you estimate your potential itemized deductions.
- Consider moving two years of charitable giving into one year. This may allow you to itemize deductions in the year of maximum giving, while using the tax savings of the higher standard deduction in the other year to help pay for your donations.
- Think about donating appreciated stock that you’ve held longer than one year. You can avoid paying capital gains, plus you can deduct the fair market value of the stock as a donation.
Are you depending on a home equity loan interest deduction?
If you’ve deducted interest on a home equity loan you used to buy, build or substantially improve your home, you’re in for some good news: you can still deduct the interest in 2018! On the flipside, if you used the loan to pay off credit card bills or for other debt, you can no longer deduct the interest.
You’ll need to take this into account as you determine what interest you can deduct as an itemized deduction this year. Understanding the impact of this change as a business owner is especially important if you use a home equity loan to fund your business.
Do you know how tax changes affect your retirement accounts?
Now is the time to consider how the modified laws will change your retirement account withdrawal plans. This includes figuring out what new federal income tax bracket you fall into and how your retirement account contributions or withdrawals should be revised to reflect the tax changes.
Give us a call at (888) 388-1040. We’ll be happy to help you create a comprehensive action plan based on the new tax laws so you can save the most tax dollars as possible in 2018.
