Congress has done its work to pass its tax plan, and now it’s time for financial planners to do theirs. This is so exciting for a guy like me to be able to help my clients figure out how to keep as much of their hard-earned money as possible.
The biggest thing to do right now is to figure out if you are likely to be itemizing your deductions in 2018. For most people the answer will be “NO.”
If your itemized deductions are less than the new 2018 standard deduction ($12,000 for single or $24,000 for married filing jointly) then you will be better off for tax year 2018 to take the standard deduction. If that’s new for you, then make sure to consider moving your deductible payments for 2018 to 2017 by making those payments before Dec. 29 (the last business day of the year).
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
So, for millions of people who used to itemize, they will have a much simpler tax return come 2018 due to the tax overhaul, which Congress approved on Wednesday, Dec. 20, 2017, and sent to President Trump to sign into law.
The main items that make up your itemized deductions include:
- State & local income tax
- Property tax
- Mortgage interest
- Charitable contributions
In 2018 and beyond, your combined state & local tax and property tax itemized deduction is limited to a TOTAL of $10,000. For people who live in states with very high property taxes and a state income tax, that’s a huge blow. Probably another reason to move to a low-tax state.
How do you know if you will keep itemizing?
How to calculate your 2018 standard deduction on the back of a napkin:
Property Tax + State & Local tax (Maximum of $10,000)
+ Mortgage interest
+ Charitable contributions
= If that totals less than your standard deduction, you would simply use the standard deduction. So SIMPLE.
On the surface that looks bad for many of us, because we are losing our larger itemized deduction amount, therefore, if your income was identical you would assume you would owe more in income tax. The reason that will not be the case for many people is that the tax rates have been lowered across the board.
Before looking at the rates and brackets; the point of doing this calculation right now is that you should consider bunching your deductions in 2017 if you won’t be able to use them in 2018!
Check out this income tax calculator for an estimate of your future income tax burden:
If after doing the calculation above you figure that you will no longer be itemizing your deductions, then you may want to find a way to make these moves before Dec. 29, 2017, to get itemized deductions for the 2017 tax year:
-
Why Taiwan Semiconductor Stock Is Falling After EarningsTaiwan Semiconductor beat expectations for the first quarter but its stock is notably lower. Here's why.
-
Strategies to Optimize Your Social Security BenefitsTo maximize what you can collect, it’s crucial to know when you can file, how delaying filing affects your checks and the income limit if you’re still working.
-
Strategies to Optimize Your Social Security Benefits
To maximize what you can collect, it’s crucial to know when you can file, how delaying filing affects your checks and the income limit if you’re still working.
-
Don’t Forget to Update Beneficiaries After a Gray DivorceSome states automatically revoke a former spouse as a beneficiary on some accounts. Waivers can be used, too. Best not to leave it up to your state, though.
-
What’s the Difference Between a CPA and a Tax Planner?CPAs do the important number crunching for tax preparation and filing, but tax planners look at the big picture and come up with tax-saving strategies.
-
Charitable Remainder Trust: The Stretch IRA AlternativeThe SECURE Act killed the stretch IRA, but a properly constructed charitable remainder trust can deliver similar benefits, with some caveats.
-
Three Ways to Take Control of Your Money During Financial Literacy MonthBudgeting, building an emergency fund and taking advantage of a multitude of workplace benefits can get you on track and keep you there.
-
How Did O.J. Simpson Avoid Paying the Brown and Goldman Families?And now that he’s died, will the families of Nicole Brown Simpson and Ron Goldman be able to collect on the 1997 civil judgment?
-
What Not to Do if an Employee or Loved One Is KidnappedBusinesses need to have a crisis plan in place so that everyone knows what to do and how to do it. Sometimes, calling the authorities isn’t recommended.
-
Why You Shouldn’t Let High Interest Rates Seduce YouWhile increased interest rates are improving the returns on high-yield savings accounts, that may not be an effective place to park your money for the long term.
