Tax Planning Time
It’s warm outside and chances are you’re thinking about your air conditioning more than taxes. But now is an ideal time to understand how changes to the tax law affect you. As your financial advisors, we have these changes on our radar and wanted to make sure you’re thinking about them too – in between sips of your cold lemonade, of course.
Here’s a brief overview of some of the new tax issues that we’ll discuss during your next annual review.
Tax rates for both individuals and small businesses have changed substantially. Income tax deductions have also changed drastically, including a nearly doubling of the standard deduction and elimination of personal exemptions and miscellaneous itemized deductions. It’s important to review your income tax withholding to see where your income falls in the new income tax bracket structure. Adjustments to your withholding can prevent surprises when you file your tax return.
Because the standard deduction has increased significantly, using itemized deductions may now require bunching two or even three years of expenses into one tax year. Deductions like donations to charity and medical expenses that you may have spread across several years are now better bunched into a single year to maximize your tax savings. If you typically take care of medical expenses or charitable donations at a regular time every year, hold off this year until you have a new tax-efficient plan.
CHECK SALT (STATE AND LOCAL TAXES)
There’s now a $10,000 combined total cap on deductions of state and local income, sales and property taxes, which is going to impact a lot of people, especially in high-tax states. This may be a big factor to account for if you’ve relied on this deduction in the past.
Get an analysis done to see how much larger your federal tax bill is going to be because of the cap on the SALT tax deduction. There may not be much you can do about it, other than changing where you live and own property, but you’ll need to have a clear picture of how it will impact your 2018 tax return.
CHECK MORTGAGE INTEREST CHANGES
There are several new rules changing how mortgage interest is deducted. You can no longer deduct the interest on new mortgage indebtedness greater than $750,000. (Interest on home acquisition mortgages obtained prior to December 16, 2017 remain subject to the prior $1,000,000 cap.) Also, you can no longer deduct interest on mortgage indebtedness that wasn’t spent directly on buying, building or substantially improving your home, regardless of when the mortgage or home equity debt originated.
If you have previously claimed a home equity loan interest deduction, you’ll need to review how this will affect your itemized deductions.
These are just a few examples of things that you’ll need to review in the wake of the largest tax law change in more than 30 years. Take some time this summer to make sure you have a plan in place!
Written By Johnson Bixby