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:
-
-
Should I Trade Stocks or Options?
Answering the question "should I trade stocks or options" will depend on your own risk tolerance, investing objectives and understanding of market dynamics.
-
This Is How You Can Be a Snowbird in Retirement
There’s a lot to consider, and warm weather shouldn’t be the only deciding factor. For instance, will you rent or buy? What’s the tax and health care situation?
-
This Is How You Can Be a Snowbird in Retirement
There’s a lot to consider, and warm weather shouldn’t be the only deciding factor. For instance, will you rent or buy? What’s the tax and health care situation?
-
You’re Fired? How AI Could Change the Labor Landscape
Machines replacing humans in the workplace is not new, but today’s advances in artificial intelligence could affect hundreds of millions of jobs.
-
What Happens When Student Loan Payments Resume?
With an increased monthly debt burden, borrowers could cut discretionary spending, causing economic turmoil. On the bright side, alternative ways to pay for college are being considered.
-
Considering Annuities? Here’s What to Keep in Mind
It takes time and effort to understand the many different types of annuities that are available and whether they’re right for you. You can start here.
-
Inflation and Retirement: Five Ways to Soothe Your Worries
Sometimes you can deal with inflation and economic turbulence by not doing anything at all, but there are considerations for retirement savers to keep in mind.
-
Remember: Retirement Accounts Are Not All Taxed the Same
How you handle your pre-tax and after-tax accounts can make a big difference in your income in retirement and the legacy you leave.
-
How to Embrace Your Financial Wellness This Fall
Economic uncertainty can take a toll on your mental health if you don’t stay on top of your financial wellness. Here’s where to start.
-
Four Threats to the Distribution Phase of Retirement
Keep challenges such as inflation, market volatility and more in mind when it’s time for you to shift from saving for retirement to spending.
