The new tax laws and things you can do right now – as published in The Racine Journal Times | May 8, 2018
Now that April is in the rear view mirror, you may think you don’t have to think about taxes until next year but there are several changes in the latest tax law bill worth paying attention to now. One may simplify your life over the next year while the other may stretch your charitable donations further.
While there are many changes to the tax laws, I’m only looking at a couple items I think could impact your financial decisions now. The first major change is the increased standard deduction which almost doubled. Just like in the past, you are able to subtract the greater of the standard deduction or your itemized deductions from your gross income to arrive at your taxable income.
When the standard deduction was lower, more people itemized due to medical expenses, state and real estate taxes, mortgage interest, charitable deductions and a number of other deductible expenses. With new limitations on certain deductions and the higher standard deduction, most people will no longer itemize their deductions. This is important to know sooner than later because you may not need to keep receipts throughout the year for medical expenses or charitable donations. Gathering this information has been a necessary hassle for many taxpayers in the past but won’t be needed in the future.
In order to determine if this applies to you, I recommend looking at your 2017 Schedule A (assuming you itemized last year) to see how close you are to the new standard deduction limit of $12,000 for single taxpayers or $24,000 for married taxpayers. If you’re more than several thousand dollars less than the new standard deduction and don’t expect any significant changes this year, it’s unlikely you’ll itemize for 2018 which means you don’t need to save the receipts.
The second strategy to consider now is for anyone over the age of 70.5 who regularly gives to charity. If you’re not itemizing then you’re also not saving taxes on your donations. The alternative would be to take distributions directly from your Traditional IRAs as a “Qualified Charitable Distribution” (QCD) so you avoid paying taxes on this money which is the same as deducting it from your income. There are a few caveats to this strategy so I recommend speaking with your tax preparer or financial advisor to do this properly.
This is important to consider sooner than later so you’re not writing checks to charity that won’t save you taxes. You can still support the causes or organizations important to you but at least do it so everyone benefits (including you)!
Taxes can be a confusing and overwhelming topic but learning about the changes gradually over the next year increases the chances you won’t miss out on an important change that affects you personally.