taxes

Make the Most of Potential Tax Deductions Under the New Tax Law

With some year-end planning, you may still find it worthwhile to file an itemized return to lower your 2018 tax bill.

Question: Will I be able to save on taxes if I prepay my January 2019 mortgage bill before the end of the year in 2018? Can I also still deduct my charitable contributions in 2018?

Answer: The answers to both questions depend on whether you itemize your tax deductions for 2018. The new tax law made some major changes to the deduction rules for 2018. The standard deduction nearly doubled, to $12,000 for single filers and $24,000 for joint filers, plus an extra $1,600 for single filers age 65 or older, or an extra $2,600 for a couple who are both 65 or older. The law also limited some deductions, including placing a $10,000 annual cap on deductions for state and local taxes (including property, sales and income taxes) if you itemize.

Because of these changes, many people who itemized in the past will now take the standard deduction instead. If you take the standard deduction, you won’t be able to take a separate tax break for charitable contributions, state and local taxes, mortgage interest, or other itemized deductions.

This is a good time of year to add up the deductions you’ve amassed so far and estimate whether you’re better off using the standard deduction or filing an itemized return. If you’re near or over the cutoff, consider moves to maximize your deductions for 2018, such as prepaying your January mortgage and donating more money to charity this year rather than next year. One way to bunch up your charitable contributions is by opening a donor-advised fund. You can make a large contribution to the fund this year (which counts for your 2018 taxes) and then have an unlimited amount of time to decide which charities to support.

If you aren’t close to the cutoff this year, you can postpone some of these moves until next year, when you might be able to file a 2019 itemized return. For instance, you can make charitable contributions in 2019 rather than 2018, make your January 2019 mortgage payment after January 1 and prepay your January 2020 mortgage payment in 2019, too.

With the new tax law, your best strategy is to plan your deductions several years in advance to make the most of tax breaks. That way you can take the standard deduction some years and maximize your itemized deductions in others.

For more information, see Last Minute Tax Tips to Lower Your 2018 Tax Bill.

Most Popular

Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How
social security

Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How

It’s always smart to maximize your Social Security benefits, and if you are divorced, one way to do that might be to take them based on your ex’s earn…
May 13, 2021
Refunds for $10,200 Unemployment Tax Break to Begin This Week
Coronavirus and Your Money

Refunds for $10,200 Unemployment Tax Break to Begin This Week

The IRS will start issuing automatic refunds in mid-May to people eligible for the unemployment benefit tax exemption.
May 14, 2021
18 Worst Things to Buy at Dollar Stores
spending

18 Worst Things to Buy at Dollar Stores

These discount retailers stock plenty of bargains, but some of the merchandise isn’t worth the buck.
May 14, 2021

Recommended

9 Reasons to File a Tax Return Even If You Don't Have To (Warning: They're Due Tomorrow!)
tax filing

9 Reasons to File a Tax Return Even If You Don't Have To (Warning: They're Due Tomorrow!)

Although you might not be required to file a tax return, it might be wise to file one anyway. Here are a few reasons why.
May 16, 2021
9 Tax Deadlines for May 17 (Tomorrow Isn't Just the Due Date for Your Tax Return)
tax deadline

9 Tax Deadlines for May 17 (Tomorrow Isn't Just the Due Date for Your Tax Return)

Between due dates for extension requests, IRA or HSA contributions, and other deadlines, there's more to do by tomorrow's tax deadline than just filin…
May 16, 2021
Tax Day 2021: When's the Last Day to File Taxes?
tax deadline

Tax Day 2021: When's the Last Day to File Taxes?

Like last year, the IRS pushed the tax deadline back this year because of the pandemic. But your 2020 federal tax return is now due soon.
May 15, 2021
Taxes on Unemployment Benefits: A State-by-State Guide
state tax

Taxes on Unemployment Benefits: A State-by-State Guide

Don't be surprised by an unexpected state tax bill on your unemployment benefits. Know where unemployment compensation is taxable and where it isn't.
May 13, 2021