So by now you have surely heard that The Tax Cuts & Jobs Act Of 2017 has passed and major changes are on the way. Unfortunately, if you live in a high-income-tax state (like New York or New Jersey) you will probably be paying more in taxes. So, what can you do?
The new $10,000 cap on state and local income tax and property tax deductions will be especially painful. What’s even tougher is that this limit is on the combined total of property and income taxes, not $10,000 each. Also, the $10,000 limit is for both individuals and married couples (it’s not $20,000 for a married couple).
While the dollar amount of state and local income tax and property tax deductions that can be taken drops, the standard deduction rises (standard deduction will be $12,000 for individuals and $24,000 for married couples). So, you will need to now focus on the timing of your itemized deductions in order to maximize their effectiveness. In some cases it may make sense to itemize one year, then take the standard deduction the next, and switch back the following year. This could be accomplished by doubling on charitable donations in a calendar year.
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Let’s take for example a married couple who lives in and owns a home in New York and donates $10,000 every January to charity. In the past, that amount, combined with their local income and property tax deductions, made it easy for them to eclipse the old standard deduction.
Now, with the $10,000 cap, itemizing may not be a possibility. However, if they decided to move that January 2019 planned contribution to December 2018, they would now have enough where itemizing made sense for 2018. Then in 2019 they could take the standard deduction, because they would not be making a charitable contribution in the calendar year. They would then continue to double up on their charitable giving in 2020 to once again itemize.
It’s nice to know that doing good for others with your charitable donations can also possibly do some good for your own bottom line. And it’s just one example of a strategy to keep your taxes in check in the new tax world.
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