Tax Planning Tips for 2018: Steps to Take Before Year End

09.20.2018 - Craig Richards, CPA/PFS, CFP


Tax season is approaching rapidly, and this year brings new legislation put in place  by the Tax Cuts and Jobs Act of 2017. While tax reform lowered tax rates and nearly doubled the standard deduction, not all taxpayers will see their tax bill reduced.  Many expenses that could be claimed as itemized deductions in the past have been eliminated or severely restricted. 

Director of Tax Services Craig Richards offers timely tips to consider as you tackle the new tax law. Of course, everyone’s financial situation is different, so be sure to work closely with your Fiduciary Trust advisors as you prepare for the new tax season.

Q: What changes could have the biggest impact on taxpayers?
CRAIG: The number of tax brackets remained the same, but rates have been reduced and the top tax rate is now 37%. The standard deduction has been increased, but many previously allowable itemized deductions have been reduced or eliminated, possibly leading to higher tax bills for certain taxpayers.

Items no longer deductible include personal exemptions, interest on home equity loans not used to improve your home, foreign real estate taxes paid, investment expenses and tax prep fees. Beginning in 2019, alimony payments for divorces finalized after 2018 will also be added to the list.

In addition, the maximum state and local income tax deduction has been reduced to $10,000 per year. This includes any combination of state and local income, real property and sales taxes. Interest on new mortgages is restricted to $750,000 of indebtedness.

Q: Can charitable donations still provide tax benefits?
CRAIG: Charitable donations are deductible only if you itemize, which may be a less likely scenario for many taxpayers now that the standard deduction has been increased. On the bright side, taxpayers who do itemize can deduct cash contributions to public charities of as much as 60% of their adjusted gross income, up from the previous limit of 50%.

If you are making charitable donations, it may make sense to bundle them into a single year so that your itemized deductions add up to more than the new, higher standard deduction in that year. For instance, if you are a married couple and pay $10,000 in state income and property taxes and $10,000 in mortgage interest, you would need to donate more than $4,000 to charity to exceed the new $24,000 standard deduction threshold and be able to itemize.  

Instead, you could consider “doubling-up” your charitable giving in one year and cutting back on your donations the following year. This could allow you to take an itemized deduction in the first year and then take the standard deduction in the second. You can still “even out” the amount that goes to charity by using a Donor Advised Fund. The fund provides an immediate deduction for the donation, while allowing you to disburse the donation to charity over multiple years.

Q: Beyond charitable contributions, did tax reform present other opportunities?
CRAIG: New opportunities are scarce, but there are several worth considering. 529 plans now offer more potential tax savings for parents of school-aged children. You can now use up to $10,000 a year from a 529 plan on tuition for Kindergarten through high school, in addition to college. Tax-advantaged 529 plans provide federal tax-free growth and tax-free withdrawals for qualified expenses as well as potential tax credits or deductions for contributions that may be offered by your state if you use their plan.

Second, if you own a pass-through business such as a sole proprietorship, partnership or S-corporation, you may be eligible for the new 20% deduction on qualified business income. This deduction is contingent upon the type of business and is subject to certain income limitations, so be sure to speak to us for further guidance.

Also, the child tax credit was increased to $2,000 per qualifying child for the 2018 tax year on children who were under the age of 17 in the current tax year.

Q: Were changes made to the Alternative Minimum Tax for individuals?
CRAIG: Yes, exemptions for the Alternative Minimum Tax (AMT) have been increased to $109,400 if married filing jointly and $70,300 if you are filing as a single taxpayer, and now start to phase out when income exceeds $500,000 for individuals and $1 million for couples. However, fewer taxpayers might be subject to the AMT since many of the most common AMT adjustment items have been reduced or eliminated.  

Q: How should taxpayers prepare?

CRAIG: If you haven’t already, you should be working with your CPA or tax advisor to make sure you understand how the new tax act applies to you. You want to be sure that you are paying in the proper amount of estimated tax or withholding for 2018 and prepare yourself so that there aren’t any surprises when your 2018 tax return is finalized.

This communication is intended solely to provide general information. The information and opinions stated are as of September 20, 2018 and may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

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