By: John P. Napolitano, CFP®, CPA, PFS, MST

With less than 30 days to go, this may be your last chance to consider some meaningful moves to alter the look of your 2018 income tax return.

For the first time, you will file a federal return under the Tax cut and Jobs act of 2017 which altered the income tax landscape materially for many.

The first item to look at is your itemized deductions. In the past, you simply paid for things that you knew would be deductible in the year that it was paid. And while the alternative minimum tax may have tripped you up in the past, this year careful consideration should be given to any expenditure between now and New Year’s Eve that you feel may be deductible.

You may recall from your lower earning years that all taxpayers can claim the standard deduction or itemize their other deductible expenses to get the largest deduction. But for this year, that standard deduction rises to $24,000 for a married couple. If your total allowed itemized deductions are less than $24,000, you’ll take the standard deduction in lieu of the itemized ones.

The biggest limitation for some here in the northeast may be the $10,000 limit on state and local taxes, known as the SALT limitation. Between income taxes and property taxes, many people in the higher taxed states in the northeast will be impacted by this new limitation. This would include taxes on a first and a second home as well as any state or local income tax that you may pay. Property taxes on any rental property will not be limited as they would be claimed on your schedule E to offset any rents received and not as an itemized deduction.

After the SALT deduction of $10,000, you would need to have an additional $14,000 of other itemized deductions in order to benefit from paying them. For now, let’s assume that you have no other itemized deductions other than mortgage interest. If your mortgage interest is over $14,000, you will itemize. But if your mortgage interest is less than $14,000, you’ll use the standard deduction. That means you may not get a deduction for any other small itemized deductions that you may have.

This may leave charities, who usually anticipate large donations at year end in a difficult place. If you’re looking to make a charitable contribution for this year, but would rather it be deductible, ensure that you won’t be in the gap between your itemized deductions and the standard deduction. If you find yourself there, consider a contribution to a donor advised fund where you may actually contribute a sum large enough to get tax benefit. Then you may disburse the funds from the donor advised fund to the charity of your choice at your leisure. When you contribute to a donor advised fund, the initial contribution may be deductible even though you only have to release 5% of the balance of your fund each year to a qualified charity.

Making Cents is published weekly in Gatehouse Media publications including thePatriot Ledger

 

John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA.  Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. US Wealth Management, US Financial Advisors and LPL Financial do not offer tax advice.  

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