Tax law changes resulting from the Tax Cut and Jobs Act (TCJA), the most significant tax changes we’ve seen since the Tax Reform Act of 1986, are in effect. The new reform impacts all kinds of taxes – individual, corporate, partnership and other “pass-through” business entities, estate, and even tax-exempt organizations.
For some, deductions are going away or changing, and for others, investment opportunities are more attractive. Here are some tips that may reduce your tax burden and maximize your deductions.
Contribute to your retirement accounts
The deadline for deductible contributions to a traditional IRA is April 15, 2019, or the due date of your return with extensions. The deduction applies to people not eligible for a company retirement plan, or if you are not eligible for a company plan but your spouse is. Roth IRA contributions are not tax deductible.
Get medical expenses out of the way now
The ability to deduct medical care expenses will become more difficult in 2019. Only expenses that exceed 10% of a taxpayer’s adjusted gross income (up from 7.5%) are allowable. If you have large medical deductions, pay them this year to fall under the 7.5% adjusted gross income percentage and realize a larger deduction.
Make charitable contributions
Consider doubling down on your charitable giving in 2018. If you plan to donate $5,000 over the next two years to an organization, consider donating $10,000 at once to take advantage of the deduction now, especially if you can’t itemize your deductions.
Make those donations directly from your IRA
If you are over 70 ½ years of age, you are required to take a “minimum distribution” from your IRA. Consider contributing to charity directly from your IRA account. You will meet the minimum required withdrawal, and not have to report the withdrawal as income. In doing so, you will get the fill deduction for your charitable contribution, even if your other deductions don’t exceed the standard deduction amount.
Finalize your divorce in 2018
If you are in the process of getting divorced, you may seriously want to consider finalizing before the end of the year. TCJA removes deductions for alimony payments for divorces finalized after 2018. In addition, alimony recipients no longer need to include the payments as taxable income. This new regulation does not apply to divorce settlements finalized before Dec. 31, 2018, but those settlements must still meet the tax-law definition of alimony to be eligible for tax deductions.
Look for new investment opportunities
The Tax Cuts and Jobs Act created a new avenue for community investment with the Opportunity Zone Tax Initiative. The initiative looks to spark economic recovery in targeted areas of the country, taking aim at $6.5 trillion in unrealized capital gains estimated to be in the market. Through the program investors can reinvest unrealized capital gains into Opportunity Funds, an investment vehicle set up as a partnership or corporation for investing in eligible businesses, real estate, or business assets.
To take advantage of the full tax discount, an investment into an Opportunity Fund must be made by Dec. 31, 2019.
Keep an eye on the future
After determining your tax bill for 2018, consider how the Tax Cuts and Jobs Act impacted your bottom line and adjust your withholding accordingly for 2019.
Hire a Professional
Navigating new tax law can be a tough road. Even if you prefer to file yourself, chatting with a professional can end up saving you time and money. The Heffler team is ready to help, whether you’re an individual filer or filing for your business.