The following questions are ones that we get asked every week at this time of year. Below are the answers that factor in the new tax law that will affect the 2018 returns.
- Will I be able to save on taxes if I prepay my January 2019 mortgage bill before the end of the year in 2018?
- Can I also still deduct my charitable contributions in 2018?
The answers to both questions depend on whether you itemize your tax deductions for 2018. Tax Reform made some major changes to the deduction rules. The standard deduction nearly doubled, to $12,000 for single filers and $24,000 for joint filers, plus an extra $1,600 for single filers age 65 or older, or an extra $2,600 for a couple who are both 65 or older. The law also limited some deductions, including placing a $10,000 annual cap on deductions for state and local taxes (including property, sales, and income taxes) if you itemize.
Because of these changes, many people who itemized in the past will now take the standard deduction instead. If you take the standard deduction, you won’t be able to take a separate tax break for charitable contributions, state and local taxes, mortgage interest, or other itemized deductions. Bear in mind that if we decide on this for your return, it’s because you will save more money by doing so.
This is a good time of year to add up the deductions you have so far and estimate whether you’re better off using the standard deduction or filing an itemized return. If you’re near or over the cutoff, think about some moves to maximize your deductions for 2018, such as prepaying your January mortgage and donating more money to charity this year rather than next year. One way to bunch up your charitable contributions is by opening a donor-advised fund (contact us if you need a recommendation on this). You can make a large contribution to the fund this year (which counts for your 2018 taxes) and then have an unlimited amount of time to decide which charities to support.
If you aren’t even close to the cutoff this year, you can postpone some of these moves until next year, when you might be able to file a 2019 itemized return. For instance, you can make charitable contributions in 2019 rather than 2018, make your January 2019 mortgage payment after January 1 and prepay your January 2020 mortgage payment in 2019, too. In addition, our retired clients should check this post.
With the new tax law, your best strategy is to plan your deductions several years in advance to make the most of tax breaks. That way you can take the standard deduction some years and maximize your itemized deductions in others.Remember that we're just a click away if you need help.
- Estate Planning under the Biden Administration:
What's changing and how to react- April 7, 2021
- Thanksgiving Items - November 25, 2020
- Do you receive Social Security, Civil Service, or VA Benefits:
There's some good news and some bad news- November 23, 2020