With tax season over and the halfway mark of the calendar year fast approaching, now is a good time to evaluate last year’s tax strategies in light of what changes might be needed in the current year. A mid-year tax check is especially important this year due to the passage of the Tax Cuts and Jobs Act at the end of 2017. Many of the provisions of this sweeping piece of tax legislation became effective at the beginning of 2018 and will affect some of the choices taxpayers make going forward.
In particular, the doubling of the standard deduction and the loss of personal exemptions stipulated in this tax law should prompt individual taxpayers to take a close look at tax deductions and tax credits claimed in previous years to see if they will provide the same tax benefits under the new legislation. The following is a list of some mid-year tax considerations that are directly affected by the provisions of the Tax Cuts and Jobs Act:
· Charitable Giving
With the doubling of the standard deduction, the incentives associated with charitable giving have changed. Under the new tax law, fewer taxpayers will benefit from gifts to charity because the sum total of all charitable deductions must now be higher in order provide a greater tax advantage than that provided by claiming the standard deduction. With this in mind, it might be advantageous for taxpayers to consider bundling charitable gifts into a single year instead of claiming them over a period of several years. Bundling would make it more likely that the tax benefits provided by the charitable giving would exceed the benefits of the standard deduction for the year in which the contributions are claimed.
· Expenses Associated with Home Ownership
Under the provisions of the new tax reform bill, taxpayers are allowed to deduct interest on a maximum of $750,000 of mortgage debt (down from $1,000,000 prior to the passage of the bill). In addition, the allowable deduction for property taxes has been reduced to a maximum deduction of $10,000 for all property taxes combined with state and local sales and income taxes. At the same time, the bill eliminates the deduction for home equity loan interest. With these three hits to the tax advantages of home ownership, summer might be a good time for taxpayers to consider the possibility of downsizing to a dwelling with associated expenses that would be covered by the provisions of the new tax law.
· Medical Expenses
After much debate, the Tax Cuts and Jobs Act held the threshold for claiming the medical and dental expense deduction at 7.5 % of adjusted gross income for the 2018 tax year. However, this threshold is set to increase to 10 % of adjusted gross income as of January, 2019. With this ceiling increase on the horizon, taxpayers might be wise to think about the timing of optional medical and dental procedures in order to achieve the maximum possible tax advantage. For example, if an optional procedure would push the medical/dental expense total above 7.5% for 2018, it might be wise to schedule that procedure before the end of the calendar year to take advantage of the lower ceiling. That being said, summer is often a good time to schedule such procedures, especially for school age children.
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