By Rick Faby, Branch Manager, Senior Vice President-Investments, Benjamin F. Edwards & Co.

You may be happy that a refund is coming, or you may be steamed at the amount of taxes you had to pay.  Regardless, the experience you had for the 2017 tax season likely will be significantly different from the 2018 tax season.  The 2018 tax season will be the first under the new rules from the Tax Cuts and Jobs Act of 2017 (“Tax Act”).  With 2017 fresh in your mind, the biggest change is that standard deductions are nearly doubled for 2018 – $12,000 for single filers, and $24,000 for married/joint filers.

Review your 2017 tax return to see whether it’s likely you’ll itemize or take the standard deduction for 2018.  If it looks like you may take the larger standard deduction compared to itemizing in 2017, you may want to review your typical tax planning.  Perhaps you increase or put off your charitable giving, or maybe consider “bundling” larger charitable gifts in one year, while holding off on them the next.

Maybe many of your itemized deductions have been lost to the new Tax Act.  Most itemized deductions and all personal exemptions are eliminated under the current law.  State and local tax deductions are also limited to $10,000 generally.  The ability to deduct home equity loans is also lost, and newly acquired mortgage interest is only deductible up to $750,000 of acquisition debt.   Review your expected deductions to see if they may apply for 2018.

With these changes, you should also consider reviewing your withholdings to make sure you don’t have any tax surprises next year.  Remember to consider the fact that withholdings will be smaller than before because the tax rates have been reduced.

Other “traditional” tax planning techniques also should be reviewed, such as:

  • Consider whether to take certain gains or losses in this taxable year. Choosing the appropriate time to take such actions can help control your potential tax liabilities.
  • Look at fully funding employer-sponsored plans and/or tax-deductible IRAs. Maximizing these contributions my lower your tax bracket.
  • Review Roth retirement planning options. Converting existing pre-tax assets to a Roth IRA, funding a Roth IRA, or making Roth salary deferral contributions through your 401(k) plan now may provide more after-tax cash flow during retirement. However, the new Tax Act does not allow you to re-characterize a Roth conversion, something that could be done previously.
  • Consider tax-exempt investments and accounts like tax-exempt municipal bonds or life insurance.
  • If you have investment accounts for your children, keep in mind the “kiddie tax” rates have also changed. Where earnings in excess of $2,100 were taxed at the higher of the child’s or the parent’s income tax rate, they will now be taxed at trust tax rates. Saving through tax-advantaged accounts, or using growth-oriented or tax-free investments can help reduce the likelihood that earnings exceed the threshold where the higher trust tax rates apply.

It’s going to be a unique tax year in 2018.  You need to review whether what you’ve done in the past is still appropriate going forward.  Work with your tax advisor and your Benjamin F. Edwards & Co. financial advisor to put together a plan that is right for you.

Benjamin F. Edwards does not provide tax or legal advice.