When the Tax Cuts and Jobs Act was signed into law, some of the most common tax planning strategies from the previous decades were suddenly changed. In this newsletter, we will discuss some of the changes in the new tax law and how you can plan around them.
Itemized deductions have been at the crux of tax planning for many people for many years. Even when tax planning isn't the only consideration, decisions like whether to buy a home or donate to charity have been affected by the tax implications of those decisions.
The Tax Cuts and Jobs Act changed the standard deduction from $12,700 in 2017 to $24,000 in 2018. But what does that mean for your itemized deduction planning? Many of the core itemized deductions, including mortgage interest, charitable contributions, and the medical deduction, are still allowed. However, you will receive no additional benefit for any of those items until their total is greater than the $24,000 standard deduction.
Because of the huge increase in the standard deduction, many of us will no longer itemize deductions every year. One strategy to still receive a benefit from itemized deductions is grouping--paying as much of the discretionary itemized deductions as possible every other year. Consider the following grouping strategies to maximize your itemized deductions:
Plan any elective medical procedures in a grouping year (the year when your deductions will be greater than the $24,000 standard deduction)
Pay current-year property taxes prior to 12/31 instead of in the following year when they would normally be paid (caution: some counties do not allow this)
Pay one 4th quarter estimated tax payment in January, and the following year's 4th quarter estimated tax payment in December of the same year (Note--the total state and local tax deduction on Schedule A is limited to $10,000 in 2018)
Prepay your monthly mortgage payment for January of the following year in December of the grouping year
**Double up on charitable contributions in the grouping year, essentially making your donations every other year
**We recognize that while tax planning is important, your reasons for donating are deeper than tax savings. However, effective tax planning and regular support of your favorite organizations do not have to be mutually exclusive. Donor advised funds (DAF's) are financial vehicles that allow you to donate money whenever you choose (and receive a tax deduction in that year), while retaining flexibility as to when the fund actually makes the contribution to the organization of your choice. In the meantime, your donations will grow in the fund tax-free.
Around the Office Updates
We are proud to announce that shareholder Dan Soukup has been honored as a 2018 recipient of the Massey Distinguished Graduate Award by Belmont University's Jack C. Massey College of Business!
The Massey Distinguished Graduate Award is an annual recognition that honors Massey alumni who display a balance of strengths in the areas of professional achievement, community involvement, and commitment to The Massey School.
If you have questions about how donor advised funds work or about how recent tax legislation should affect your tax planning strategies, please contact us at (970) 223-2727.