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It's Tax Planning Season!

It's time to plan for your 2018 taxes.  The Tax Cuts and Jobs Act of 2017 was enacted into law in late 2017 and has brought many changes.  The standard deduction has increased from $12,000 to $24,000 for married filing jointly, while the personal exemption for each household filer and dependent was eliminated (from $4,050 in 2017).  This means that many taxpayers who previously had itemized deductions will be using the standard deduction in  2018.  State and local tax deductions are limited to $10,000 per year, so this will result in lower deductions for many taxpayers.  There may, however, be opportunities to bunch itemized deductions from two years into one year so that the total exceeds the standard deduction.  This can be accomplished by

  1. Accelerating medical expenses into 2018 from 2019 because the medical expense deduction threshold in 2018 is 7.5% vs 10% in 2019
  2. Clients can  contribute to a donor advised fund in 2018 and take the charitable deduction this year, but have the donations distributed over multiple years in the future.  This would allow the charitable donations to be deductible instead of lost because the standard deduction amount has increased so greatly.

Other tax strategies for 2018 may include the following:

  1. Some clients may want to utilize tax-free municipal bonds in their portfolios since the interest on these is excluded from the computation of net investment income. This will  avoid some of the net investment income tax that would be levied on taxable investments

529 plans are now able to be used for a child's elementary and secondary education, in addition to college and other qualified higher education expenses. These are appropriate for clients who intend to use private primary education for their children and grandchildren.

For clients with children, it is important to note that the child tax credit has increased to $2,000 per qualifying child, and a new family credit of $500 per qualifying dependent will be available for 2018.

Since the tax changes are so sweeping and could result in significant increases or decreases in tax liability in 2018, many clients could benefit from a review of their tax situation to see if they have appropriate withholding in place to account for these changes.

Please contact me if you could benefit from a tax planning Financial Strategy session.  I look forward to hearing from you.