Taxpayers and professionals are still working to make sense of the sweeping changes brought about by the 2017 Tax Cuts and Jobs Act (TCJA).
If the 2018 tax season left you reeling, you are not alone. The TCJA implemented the broadest reforms in decades, leaving many Americans wondering how to adjust. Tax attorney Steve Moskowitz, of Moskowitz LLP, lists five key ways to get ahead for next year:
1. Revisit tax withholdings. The Government Accountability Office reports nearly 33 million taxpayers did not withhold enough taxes in 2018. As a result, 21% were responsible for paying even more at year’s end. This discrepancy is due, in part, to caps on state and local tax deductions and the elimination of the personal exemption. A qualified tax attorney can help calculate the tax liability and determine the needed withholding.
2. Understand how family size affects standard deductions. The TCJA nearly doubled the standard deduction amounts, raising them to $12,000 for singles, $24,000 for joint-filing married couples, and $18,000 for heads of households. This means larger families with several dependents could end up paying more in taxes, and the Child Tax Credit – increased to $2,000 – may not be enough to offset the loss. Seek help from a tax attorney to determine the best possible strategy, such as taking advantage of other applicable sections of the new tax law.
3. Make good use of allowed, itemized deductions. Taxpayers who rely heavily on itemizing may be in for a shock, as the TCJA significantly altered which items are deductible. In the event that these changes increase the year’s tax bill, a qualified tax attorney can help explore other avenues, such as deducting the interest from mortgage debt, charitable contributions made, medical expenses paid, and other qualified benefits.
4. Be aware of changes to the SALT deduction that could affect itemization. Many Americans in higher cost-of-living areas rely on the State and Local Tax deduction (SALT) to reduce their tax burden. Married couples may find, however, that the standard $10,000 cap is not enough to offset liabilities for a dual-income household. Filing separately does not affect this cap, as couples are still limited to a total $10,000 deduction ($5,000 each). A seasoned tax attorney can help married couples decide whether or not to itemize, based on these abrupt changes.
5. Re-think charitable deductions. The TCJA allows for charitable deductions on cash donations of up to 60% of a person’s adjusted gross income (AGI) – a change that will largely benefit wealthier taxpayers who can afford to give more. Instead of depending on charitable deductions, a tax attorney can explore alternate strategies, such as reducing tax liabilities by transferring appreciated stock or assets to a charity, or “bunching”: consolidating charitable donations and deductions into certain years so the standard deduction is exceeded.
About Post Author
