By now you may be familiar with the basic changes in the new tax law passed by the US Congress in December. While there are many facets to the new tax bill, I see four changes that have the potential to change many families and individuals’ income taxes:
1. The tax rates were lowered for most of the seven existing tax brackets
2. The personal exemption was eliminated
3. The standard deduction roughly doubled
4. Many popular deductions were tweaked, eliminated or capped
For many taxpayers, it will no longer be worthwhile to itemize deductions on their tax returns. The new higher standard deduction, for many, will be more than their combined deductions such as mortgage interest, charitable contributions and state and local taxes. Currently, 70 percent of U.S. households claim the standard deduction. The US Congress Joint Committee on Taxation estimates this will increase to 94 percent in 2018.
Given these changes, should you save your charitable donation and other tax deduction bills and receipts? The accountants with whom I have spoken advise that you do. When you have the information on the 2018 expenses and contributions you otherwise would have deducted, you can more easily determine how the new tax law will impact you.
Your tax preparer may have done a 2018 tax projection when he or she prepared your 2017 tax returns. If not, or if you have had or expect significant changes this year, I recommend you meet with your accountant for a mid-year tax impact analysis. If you anticipate your taxes will increase, having this information now rather than next winter will give you time to prepare. If you expect your taxes will decrease, you can start redirecting those funds now.
Everyone’s tax situation is different. There may be one provision in the new tax law that lowers your taxes and another one that increases it. Until you have an idea of what your tax liability may be for 2018, I recommend you document as you have in past years and consult with your CPA sooner rather than later.
The Motley Fool has a good, easy-to-understand summary of the tax law changes. To read that article, click HERE.
This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice. Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.