November 23, 2018
End-of-Year Taxes: 7 Things to Consider
By Vance Albitz, CFP®
- The Tax Cuts and Jobs Act increased the standard deduction for 2018. The 2018 standard deduction is now $12,000 if you are single, or $24,000 if you’re married filing jointly. This will likely allow more people to take the standard deduction instead of itemizing.
- The Tax Cuts and Jobs Act eliminated the personal exemption. The personal exemption amount was previously $4,050 for you and your spouse (with income phaseouts).
- Understand that you still may have to pay the Alternative Minimum Tax (AMT). The AMT is figured separately from your regular tax liability and with different rules. You have to pay whichever tax bill is higher and the AMT is tough to get around.
- Consider selling investments that have declined in price to offset gains. At Albitz/Miloe, this is something we do towards the end of the year in taxable investment accounts and make adjustments accordingly.
- Consider contributing the maximum to your retirement accounts. There may be no better investment than tax-deferred retirement accounts. Make sure you look at limits and see if you can contribute an extra amount before year-end.
- Consider adding money to your Health Savings Account. You have until April to do this, but it doesn’t hurt to start thinking about it now.
- Take some last-minute tax deductions, but be aware of all TCJA changes when itemizing (*see below). For those that plan on itemizing, be aware of the 2018 changes. The attached document highlights six prominent changes this year.
*2018 Itemized Deductions Updates:
- State and Local Tax Deduction (SALT). Under the TCJA, the deduction for all state and local taxes combined cannot exceed $10,000. These taxes include state and local income or sales taxes, real estate taxes, and personal property taxes. Limiting this one deduction might mean itemizing won’t make sense for many taxpayers.
- Mortgage and Home Equity Loan Interest Deduction. Mortgage interest remains deductible – with an important change: for mortgages taken out after December 14, 2017, only the interest on the first $750,000 of mortgage debt is deductible. If you took the mortgage out before this date, you won’t lose any of your interest deduction. Interest on home equity loans will no longer be deductible after 2017. This affects interest on all home equity loans used for purposes other than to improve the current home, even if the loan was taken out before December 15, 2017.
- Charitable Contributions Deduction. The TCJA enhanced the deduction for charitable contributions by raising the limit that can be contributed in any one year. The limit is now 60% of adjusted gross income, up from 50%.
- Medical Expense Deduction. Under prior law, taxpayers whose unreimbursed medical expenses exceeded 10% of their adjusted gross income (AGI) could deduct that excess. Under the TCJA, taxpayers may deduct unreimbursed medical expenses that exceed 7.5% of their AGI. This change has been made retroactive to January 1, 2017, and is effective for the 2017 and 2018 tax years.
- Job Expenses Deduction. Job expenses and miscellaneous itemized deductions subject to 2% AGI floor will no longer be deductible on Schedule A. This includes employee business expenses that were reported on Form 2106 such as vehicle expenses, travel expenses, meals and entertainment, job education, etc.
- Other Itemized Deductions. SALT, mortgage interest, and charitable contributions are among the most widely claimed deductions, but the list of itemized deductions allowable before 2018 was more extensive. Gone in 2018 are itemized deductions for unreimbursed employee expenses, tax preparation fees and other miscellaneous deductions.
For comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.