A recent survey from the American Institute of CPAs found that 63% of individuals who either have $250,000 in investable assets and/or $200,000 in household income were likely to tweak 2018 financial planning strategies as a result of the new tax law.
Most of the respondents indicated that ‘tweaking’ their financial plans would be in an effort to reduce taxable income, and the 2018 Tax Cut and Jobs Act offers a few new methods to do just that.¹
Here are four:
- Lump Your Charitable Contributions Together – in the new tax law, the charitable giving deduction has remained in place for taxpayers who itemize. The thing is, however, that many taxpayers are expected to take the standard deduction in 2018 instead of itemizing, since it has jumped to $12,000 for individuals and $24,000 for married couples.
One method to get over the standard deduction, however, would be what many CPAs call “bunching,” or making a few years’ worth of charitable donations in a single year. That way, you could itemize your deductions in one year, and perhaps take the standard deduction the next. - Pay Off Home Equity Lines of Credit – if you’ve taken a home equity line of credit and used the money for something other than improving your home, you can no longer deduct the interest on your debt. In other words, it may ultimately cost you more money to keep debt on your balance sheet. Consider paying it off this year.¹
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Many Business Owners Get an Extra 20% – many small business owners are amongst the biggest beneficiaries of the new tax law, particularly with respect to the 20% deduction on qualified income. The tax break is available to pass-through entities like S-corporations and limited liability companies (LLCs). There are some restrictions, however, such as a cap on the amount of taxable income that qualifies for the full deduction – $157,500 if you're single or $315,000 if you're married and file jointly. Beyond those thresholds, there may also be restrictions on high income service entrepreneurs, like doctors, lawyers, and financial advisors. However, many tax accountants are saying that there could be a decent amount of wiggle room with this feature of the tax law, since the language contains several ambiguities.¹
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Reduce Taxable Income the Old-Fashioned Way: By Saving for Retirement – the Treasury Department announced an increase to the limits of 401(k) contributions for 2018, to $18,500. This amount is only up $500 from 2017 levels, so there’s not much on the table – but it’s still something. The catch-up amount for savers over 50 stays the same, at $6,000. Self-employed and small business owners get a boost, however, with the SEP IRA or solo 401(k) contribution rising from $54,000 in 2017 to $55,000 in 2018.
As a refresher, the new tax brackets under the 2018 Tax Bill are as follows…
|
Tax Bracket |
Taxable Income Bracket Breakdown |
|
10% |
Single: $0 – 9,525 Married Filing Jointly: $0 - $19,050 Head of Household: $0 - $13,600 |
|
12% |
Single: $9,526 - $38,700 Married Filing Jointly: $19,051 - $77,400 Head of Household: $13,601 - $51,800 |
|
22% |
Single: $38,701 - $82,500 Married Filing Jointly: $77,401 – $165,000 Head of Household: $51,801 - $82,500 |
|
24% |
Single: $82,501 – $157,500 Married Filing Jointly: $165,001 - $315,000 Head of Household: $82,501 - $157,500 |
|
32% |
Single: $157,501 - $200,000 Married Filing Jointly: $315,001 - $400,000 Head of Household: $157,501 – $200,000 |
|
35% |
Single: $200,001 - $500,000 Married Filing Jointly: $400,001 - $600,000 Head of Household: $200,001 - $500,000 |
|
37% |
Single: $500.000+ Married Filing Jointly: $600,000+ Head of Household: $500,000+ |
Review other changes passed with the Tax Bill that will impact your 2018 tax filing here.
Need to Tweak Your Financial Planning Strategies in 2018? Contact WrapManager
A key service that WrapManager provides to our clients and prospects is a comprehensive investment plan. We understand that everyone’s financial situation is unique and often times complex. Building an investment plan means taking all of the financial intricacies in life – including those out of our control like tax laws – into mind when formulating a strategy for how to save, how to invest, and how to manage income. Learn about how WrapManager can help you navigate your financial life and create an investment plan today. Take control by emailing us at wealth@wrapmanager.com or call us anytime at 1-800-541-7774.
Sources
¹ CNBC
The information presented by WrapManager, Inc. is general information only and does not represent tax or legal advice, either expressed or implied. You are encouraged to seek professional tax advice for income tax questions and assistance. WrapManager, Inc. does not advise on any income tax requirements or issues.
