It has been almost a full year since passage of the Tax Cut and Jobs Act which made sweeping tax changes taking effect for 2018. Although there are only about four weeks left to go before the year ends, it’s not too late to implement some planning moves for 2018. Since you are probably an individual human being type taxpayer you need to act before year end. There is not much you can do after the ball drops New Year’s Eve.
But where to start? I suggest start by doing a Tax Reform Impact calculation. Start with that 1-page summary calculation that your tax preparation software prints out for your 2017 tax return. Then, do a side-by-side calculation of that same information using the new 2018 rules. Your tax preparation software may even do this for you. You are likely going to see some striking differences between the 2017 and the 2018 calculations. In the 2018 column: no exemptions, no miscellaneous itemized deductions and other not so good differences. But you may also see some very good things like a much higher standard deduction, a higher child tax credit, a new family tax credit, and the overall benefit of lower tax rates.
So here is the tip for today. If you notice that your level of itemized deductions for 2017 is close to your new standard deduction level for 2018, you might benefit from applying a bunching strategy to deductible contributions and/or payments of medical expenses. This is done by accelerating or deferring discretionary medical expenses and/or charitable contributions into the year where they will do some tax good. For example, I have a good friend whose normal level of itemized deductions is just a little higher than her new standard deduction and a good part of those itemized deductions is charitable contributions. If she accelerates some of her 2019 donations into 2018 and then defers some into 2020, she will noticeably decrease her tax for 2018 and 2020 with no noticeable increase in 2019. Why? Because in 2019 her new higher standard deduction will keep her taxable income at its usual level while the increased deductions in 2018 and 2020 will garner her a higher refund.
Stay tuned for some more tax saving tips next Tuesday or give us a call.