Although it feels like summer has just ended, the holidays are a short month and a half away. Instead of spending time tax planning, focus on getting yourself organized now while you have some free time. You won’t want to take time away from family and friends to get your financials in order.
It’s important to understand that optimizing your tax position will be no small task this year given that there are over 130 new tax provisions in the Tax Cuts and Jobs Act.
Thanks to accountingtoday.com. here are the top five TCJA tax planning opportunities for individuals in 2018:
No. 5 — Itemized deductions versus the standard deduction
The Tax Cuts and Jobs Act roughly
So, what does this mean for your clients? For those who typically claim the standard deduction, chances are their tax bill will decrease for 2018. Although personal exemption deductions are no longer available, a larger standard deduction, combined with lower tax rates and an increased child tax credit, may result in less tax. Also, you may find that clients who itemized last year won’t itemize this year, or they may be able to itemize for state income tax purposes but not for federal. You will need to run the numbers to assess the impact
No. 4 — Revisit your qualified tuition plans
Qualified tuition plans, also called 529 plans, are a great way to ease the financial burden of paying for college. Before the Tax Cuts and Jobs Act, earnings in a 529 plan could be withdrawn tax-free only when used for qualified higher education at colleges, universities, vocational schools or other post-secondary schools. Thanks to the Tax Cuts and Jobs Act, 529 plans can now be used to pay for tuition at an elementary or secondary public, private or religious school, up to $10,000 per year. If your clients are paying tuition for their children or grandchildren to attend elementary or secondary schools, encourage them to either set up or revisit their 529 plans. They’ll thank you for it later.
No. 3 — Watch out for home equity debt interest
Under the Tax Cuts and Jobs Act, home equity debt interest is no longer deductible. Or so you thought. According to the IRS, interest paid on home equity loans and lines of credit
No. 2 — Bunch charitable contributions
The new law temporarily increases the limit on cash contributions to public charities and certain private foundations from 50 to 60 percent of adjusted gross income. However, the doubling of the standard deduction and changes to key itemized deductions will prevent some clients from itemizing in 2018 and therefore benefiting from this increased limit. One way to combat this is to bunch or increase charitable contributions in alternating years. Suggest that clients set up donor-advised funds. This will allow them to claim a charitable tax deduction in the funding year and schedule grants over the next two years or other multiyear periods. Clients can take advantage of the deduction when they’re at a higher marginal tax rate while actual payouts from the fund can be deferred until later. It’s a win-win situation.
No. 1 — Maximize the qualified business income deduction
Perhaps the hottest topic of the Tax Cuts and Jobs Act is the
Although the final official guidance is lacking on this new deduction, there are some planning strategies that can be considered now. For example, clients can adjust their business’s W-2 wages to maximize the deduction. Also, it may be beneficial for clients to convert their independent contractors to employees where possible, but make sure the benefit of the deduction outweighs the increased payroll tax burden and cost of providing employee benefits. Other planning strategies include investing in short-lived depreciable assets, restructuring the business, leasing and selling property between businesses, and, yes, even getting married.
If you have questions about some of these TCJA tax planning opportunities and would like some guidance, please give me a call today! Let’s get you organized before you need to start your holiday shopping.