This is the first tax filing season since the Tax Cuts and Jobs Act (The Act) was passed. Even though 2018 is over, there are tax planning strategies you should think about before you file and plan accordingly for 2019. There still remain 7 income tax brackets and the marginal rates have been lowered.
However, many deductions have been eliminated which will necessitate that you plan ahead for 2019 and think about the losses and expenses you had this past year. Some over-looked items that may help to lower your taxable income:
Medical Expense Threshold- For 2017 and 2018 The Act lowered the floor from 10% to 7.5% of adjusted gross income that must be exceeded in order to take a deduction for medical expenses on your 2018 tax return. For tax years after 2018, the medical expense deduction floor will return to 10%.
Combine Charitable Giving into the Same Year- The deduction for cash donations to charities has increased to 60% of the giver’s adjusted gross income. Charitable donations can be combined every other year to exceed the new higher standard deduction ($24,000 married; $12,000 single).
The Gift and Estate Tax Exemption- The exemption amount has almost doubled to $11.18 million per person and will increase through 2025 with inflation. The exemption amount is set to return to pre-2018 levels after 2025, so ‘use it or lose it’ if you want to pass assets now to your heirs and tax-free to both parties.
Harvest Your Investment Losses- This past year has been challenging for the stock market and investor portfolios. Consider harvesting your 2018 losses on your taxes to offset the capital gains in your securities portfolio from this past year.
Maximize Pre-Tax Retirement Savings Contributions Now- If your account was open prior to the end of December 2018 and you didn’t fully fund your accounts, now is the time to do so before Tax Day 2019.
Review Your Withholding for 2019- If you haven’t reviewed your tax withholding from your paycheck in the last few years, now is the time you can make adjustments before 2019 gets further underway. It may mean the difference in paying in on your tax return next year or not.
I’m able to provide you with information as it pertains to specific securities investments and their tax consequences, but recommend you consult your tax professional for additional tax savings strategies for your situation.