The 2018 tax reform changes will affect almost everyone.
The nine biggest changes for this year’s tax filings include:
- Larger standard deductions for married couples of $24,000.
- Personal exemptions are eliminated and there is no need to file for these.
- A new 37% top tax bracket for high earners. The Obama taxes will remain including the 3.8% Net Investment Income Tax and the 0.9% medical surtax on high earners.
- Estate tax exemption is boosted to $11.2 million for an individual and $22.4 million for a married couple.
- Child tax credit is increased to $2,000 per qualifying child.
- State and local tax deduction or SALT tax deduction limited to $10,000.
- Mortgage interest deductions can only be taken on mortgage debt up to $750,000, down from $1 million. This applies to mortgages taken out after Dec. 15, 2017. Interest on home equity debt can no longer be deducted.
- For charitable deductions, taxpayers can deduct donations of as much as 60% of their income, up from a 50% cap.
- For rules on retirement contributions, deductions, and deduction phase-outs, please consultant a professional or use updated software.
Here are some other key tips to consider when filing your taxes for 2018:
- Software - Use the most reliable CPA professional or Tax Software. Some companies are offering Free Software download for basic income tax filings and helping you receive your refund for a small fee.
- Records - Consolidate and separate your online or hard copy records. Download year end files while they are available.
- Income - Strategically designate income. Make sure payments from others to you are separated for either 2018 or 2019 for proper filings.
- E-File - The USA and other Countries may allow for a free e-Filing of your taxes online direct with the government.
- State Issues - Because some states have high taxes, consider analyzing your income, entities, or donations to be the most effective for that state.
- Gifting – Document your annual exclusion gifts to fund college for loved ones or gifts of stock or cash loved ones.
- Charity - Ask for statements from charities regarding your charitable giving that you made last year.
- Get your receipts for any advertising - Capture last year’s expenses.
- Health Plan - Make sure your health care coverage and plan is in place and premiums are facilitated.
- Analyze investment sales – You may reduce certain gains with losses. Your investment accounts may allow integration with your tax software.
- Contributions to your qualified retirement plan before April 15 - You may be able to make contributions to your 401(k) plan, a profit-sharing plan or a defined benefit (pension) plan. As long as the plan was set up by the end of last year.
- Maximize your retirement plan contributions. Example: USA, the maximum amount of money allowed to put in your retirement accounts may be ($18,500 for 2018, $24,500 if you are age 50 or over).
- Take your required minimum distributions (RMDs), Thus, start making regular minimum distributions from your traditional IRA by April 1st following the year in which you reach age 70 ½.
- Flexible spending accounts - money that goes into the account for medical related bills avoids both income and Social Security taxes. You may have “use it or lose it” rules. Call your work office to determine if your plan carries over the money from last year for a grace period.
- Tax Prep Help - If you have trouble with filing, go to your local tax preparation office and ask for help. Usually the fee is small or based on the amount of your refund and they can get your money back quickly
- HSA - Contribute to your HSA account if you can. You may be able to contribute to your HSA before April 15 of this year.
- Make a Filing Check List – Make a check list of things to deduct or expense for last year. Examples: education credits, 529s, charitable deductions, medical expenses, gains and losses,
- Extensions – Request an extension before tax filing day if you need it.
- Mandate Repeal - Tax reform repealed the individual mandate and people who do not purchase health insurance will no longer have to pay the Obama penalty.
- 20% Small Business Deduction - Small business taxpayers with pass-through businesses may be able to deduct 20% of their pass-through income.
- Repatriation of foreign cash and assets – Individuals and businesses may be able to bring profits home at a lower tax rate. Please consult with a professional about repatriating money from overseas.
- IRS Website – Over the years, the IRS website has become amazing and very helpful. Check the IRS website for updates, forms, tips, and e-filing.
Deductions that have been eliminated
Many deductions remain under the Trump tax law, there are some that are eliminated such as the:
- Casualty and theft losses (except those attributable to a federally declared disaster)
- Moving expenses
- Employer-subsidized parking and transportation reimbursement
- Unreimbursed employee expenses
- Tax preparation expenses
- Other miscellaneous deductions previously subject to the 2% AGI cap
Since there are so many critical changes, it would be wise to review the changes and use excellent CPA or software services to navigate this years tax season. Many tips taken direct from the IRS website. Please consult with a licensed professional before making any important decision.
George Mentz JD MBA CWM Chartered Wealth Manager ® is a licensed attorney and CEO of GAFM ® global education, which is an ISO 29990 Certified professional development company operating in over 50 nations. Mentz is an award winning author and advisory board member to several companies around the world in education, charities, and crypto currency.