Tax Planning Tips & Tid-Bits for 2018
Beginning in 2018—and until 2026—the federal tax code has been changed fairly dramatically. How does this affect you, and what should you be doing to take full advantage of these changes?
How it may affect you:
- The seven tax brackets have been updated, and most Americans will pay 3% less to the U.S. Treasury—on average.
- The Standard Deduction has been nearly doubled to $12,000 for individuals, and $24,000 for married couples. This means most Americans won’t have to fill out a Schedule A and itemize their deductions. This also means your charitable contributions, mortgage interest, state income tax and personal residence property taxes aren’t as meaningful for tax purposes.
- Investment advisory fees paid to advisors like SFM, as well tax-preparation fees are no longer tax deductible. We have begun deducting our fees from each account, rather than your taxable account (with the exception of Roth IRAs, if we can help it).
- If you own an LLC or S-Corp you may be eligible to deduct up to 20% of your “Qualified Business Income” (QBI) on your individual tax return. Service businesses have income limitations, so reach out to us or your tax advisor for more information.
- State and local tax deductions are limited to $10,000 per year on Schedule A.
- Mortgage interest is limited in its deductibility, for new purchases, refinances, and home equity loans.
What should you be doing?
Consider contributing to Roth IRAs/401ks instead of Traditional—or even converting Traditional IRA and/or 401k dollars to your Roth IRA, depending on your marginal tax rate.
If you are a small business owner, learn more about the “QBI” deduction.
Consider making charitable contributions through a Donor-Advised Fund, to take advantage of a large, one-time donation that you can itemize on Schedule A, yet can be doled out to your chosen charities that depend on annual donations.
Consider re-locating from a high tax state to a low-tax state (from Oregon to WA, NV, or AZ perhaps?), given limited deductibility of state and local taxes.
Review your 2017 Schedule A itemized deductions, to try to gauge if you will be able to itemize again in 2018.
Enjoy investing more money for your future, rather than having it spent on the whims of those in Washington D.C.