Most of the provisions of Tax Cuts and Jobs Act that was voted into effect at the end of 2017 went into effect at the beginning of this year. As a result, the 2018 tax landscape is significantly different from that of the previous year. With this in mind, taxpayers who want to avoid a surprise when they file their 2018 Tax Returns would be wise to take a close look at how previous tax planning strategies will be affected by the sweeping changes to the tax code included in this new legislation.
The following are some of the important ways the Tax Cuts and Jobs Act could affect your 2018 Tax Return:
The new tax plan has seven income tax brackets, just as the old plan did. However, the income limits that define these brackets have changed. This being the case, it is important that taxpayers become familiar with the changes in order to maximize any tax advantage that might be connected to such tax planning strategies as postponing or accelerating income or realizing capital gains and capital losses.
One of the most important tax planning considerations contained in the new tax reform bill is the significant increase in the standard deduction. The bill raises the standard deduction for single taxpayers from $6,500 to $12,000 and includes similar percentage increases for heads of household and joint filers. With such large increases, many taxpayers who have previously itemized deductions may find that they will realize a greater tax advantage by taking the standard deduction.
Although the new tax reform plan still allows a tax deduction for charitable giving, the potential tax advantage that it offers has changed. In light of the higher standard deductions outlined above, the sum total of all itemized deductions must exceed a much higher threshold in order to provide a greater tax savings than one that would be obtained by taking the standard deduction. With this in mind, taxpayers may want to consider bundling charitable contributions into a single year or using a donor advised fund where a single charitable contribution made in any given year is parceled out to various charities over succeeding years.
Prior to the passage of the Tax Cuts and Jobs Act, taxpayers were able to take a tax deduction for medical expenses as long as the sum total of those expenses was more than 10% of adjusted gross income for the tax year in question. The new tax reform law lowers this floor to 7.5% of adjusted gross income for tax years 2017 and 2018, at which time it will return to its previous 10%. For some taxpayers, the lowered ceiling on the medical expense deduction could be an important tax planning consideration when determining whether to itemize deductions or take the new, higher standard deduction.
The Tax Cuts and Jobs Act has made several significant changes to the tax advantages provided by 529 Plan contributions. In addition to raising the annual contribution limit eligible for the gift tax exclusion from $14,000 to $15,000, the new tax reform plan allows taxpayers to use 529 Plan funds to cover tuition expenses for grades K–12 with a limit of $10,000 per year, per beneficiary.
Because changes to the tax code such as those described above will have an impact on taxes owed in 2018, taxpayers would be wise to become familiar with these changes in order to prevent a possible surprise at tax time. The tax professionals at Los Angeles Bookkeeping stand ready to help you navigate this new tax landscape. With over 50 combined years of experience, the staff members of LA Bookkeeping are well prepared to help clients achieve the maximum tax advantage possible.
LA Bookkeeping is a full service bookkeeping and accounting firm conveniently located in Beverly Hills, California. Our firm employs Certified Public Accountants, licensed Enrolled Agents and certified bookkeepers who have the knowledge and experience necessary to provide each client they serve clients with the full range of tax, accounting and bookkeeping services. Don’t wait! Get your tax plan in order today! Contact us by phone at 310-765-1596 or email us to schedule a free, no obligation consultation with one of our Los Angeles Bookkeeping professionals.