The end of the year is fast approaching and after the end of the year, your chance to make tax saving moves will be limited. The Tax Cuts and Jobs Act (TCJA) made some major changes to the federal tax laws that will affect nearly all individuals.
Here are four strategies that could help lower your personal tax bill.
- Analyze your itemized deductions. The TCJA nearly doubled the standard deduction from $12,700 to $24,000 for married filing joint couples and from$6,350 to $12,000 for single taxpayers. With this change, it makes sense for you to determine if you will still be itemizing deductions in 2018. Due to the large increase in the standard deduction, the tax portion of itemized deductions being limited to $10,000, miscellaneous expenses being eliminated and mortgage interest being reduced, it is estimated that only 10% of taxpayers will now itemize. If you are someone who has itemized deductions close to the standard deduction amount, it would make sense for you to try and bunch your deductions so that you itemize every other year. For instance, if you are itemizing in 2018, you may want to make more charitable donations this year and cut back on your donations for the 2019 year or possibly you might make your house payment in late December instead of the 1st of January.
- Review your investment account. With the downturn in the market recently, you may have investments that you want to sell so that you can harvest the losses and use against your capital gains. Harvesting losses can be especially beneficial if you have short term capital gains to offset since they are taxed at your ordinary income rates. If you do not have any capital gains, you can still take up to $3,000 of your losses against ordinary income which includes your wages, interest and dividend income.
- Give your required minimum distribution (RMD)from your IRA to a charity. By directly contributing your IRA distribution to charity, you do not increase your adjusted gross income which can affect other items such as the amount of your social security income that is taxable, how much you pay for Medicare premiums in the next year, or the amount of medical expenses or charitable expenses that are deductible.
- Give appreciated investments directly to charities or loved ones. If you are in a high tax bracket and want to give away an investment that is increased in value and you have owned for over a year, it makes more sense to give the stock to the charity rather than sell the stock and give the cash proceeds to the charity. This can also make sense if you want to give a gift to a loved one, depending on the tax situation of the loved one. If it is for charity, you will get a charitable deduction equal to the value of the stock, and not have to pick up the capital gain if you had sold it.
With all of the changes this year due to the TCJA I strongly suggest that you discuss your situation with your tax advisor and get the personalized tax advice you need. One or maybe all four of these strategies could help you reduce your taxes. Don’t wait, the year end is quickly approaching!
A little more about us:
Located in West Des Moines, Iowa with a branch office in Winterset, Iowa, McGowen, Hurst, Clark & Smith, P.C. celebrates 65 years of extending excellent service to our clients, providing them with accounting, auditing, consulting and investment expertise.
Established in 1946, our staff has grown from 3 to 60 employees, making us large enough to provide our clients with a broad base of experience and resources, yet small enough to offer very personalized service—which we feel makes us stand apart from other CPA firms. In addition to the traditional services of Accounting, Tax Preparation, Audit and Business Consulting, MHC&S offers our clients specialized services including Estate Planning, Business Valuations, Cost Segregation Studies, Retirement Planning, QuickBooks Training, Financial Advisory Services, Fraud Detection and Deterrence, Business Succession Planning, Litigation Support and more.
MHC&S is a member of CPAmerica International, Inc., a national association of accounting firms offering membership to only 90 firms throughout the United States. This association offers a wide pool of additional technical expertise to the members firms, as well as continuing professional education necessary to maintain the degree of excellence which MHC&S feels is vital in today’s business environment.