It's that time of year once again—you're probably digging
through piles of papers trying to find old receipts for 2017 tax purposes. Your
2018 taxes aren't even in your periphery at this moment, and why would they be?
This tax season may take priority right now, but there are good reasons to
think ahead to the 2018 tax year. There are big changes ahead for tax laws in
the coming year, and you can get ahead of them, possibly gaining an edge or a
break on your next taxes.
The new Tax Cuts and Jobs Act was officially made law in
December of last year. Current President Donald Trump promoted the bill as one
that made existing and new tax codes simply enough for anyone to understand.
The changes were supposed to make taxes so simple, in fact, that he said one
would be able to file their taxes on an index card.
While it is unlikely that any new laws will make taxes that
easy, it is almost a certainty that the recent stipulations will affect
millions of people across the nation. That's why making a plan now can be a big
help to you, as you'll be able to maximize your returns and mitigate risk.
One of the biggest changes is how the standard deduction is
handled. This deduction is nearly double what it was before, with both single
and joint filers getting $12,000 and $24,000 in deductions, respectively. The
government expects fewer taxpayers than before to itemize thanks to this
increased limit, but a qualified pro can help you decide if itemizing is still
right for you.
Change Withholding Allowances
Check your latest W-4 form as soon as you can. This is the
form that lets your employer know how much to withhold from your paycheck for
tax purposes. Personal exemptions will no longer be valid under the new law and
if yours aren't adjusted, your employer may take less than they should. You
don't want to owe more in lieu of getting a refund.
Plan Medical Procedures for 2018
There are also changes to medical deductions. If you spend
more than 7.5 percent of your gross income for 2017 or 2018 on medical expenses,
you can deduct those costs from what you owe. Although elective procedures are
not covered, you can deduct things like travel costs to specialists' offices.
Consider Private Education
The new bill expands on plans that allow families to pay for
privates schools starting in kindergarten and going up through college if
necessary. However, personal spending has a cap of $10,000 annually. More than
half of the states in the U.S. allow for deductions if you invest in one of the
private plans. However, keep in mind you can't deduct what you invested from
Invest in Charity
If you want to maximize charitable donations, consider using
a fund that directs donations toward taxpayer charities or a donor fund. The
only caveat is that most of the investment firms require at least $5000 up
front. However, you can make monetary gifts that lower your taxable income,
giving you a much-needed break. Anyone over 70 can make IRA contributions to
charity directly, a provision that remains unchanged from last year.
Take Stock of your Home Equity
Under the old law, a homeowner was able to deduct the
interest on their home equity loans regardless of how they utilized the loan.
However, this is no longer a valid option under the new law. The only
deductions of this category you're allowed to make relate to acquisition
indebtedness. What that means is any interest you accrue on an equity loan you
needed to buy, construct, or make changes to a home is deductible. However, if
you used an equity loan on your home to help pay off other debt, it's a good
idea to take a look at that loan and how the new terms affect it. Experts
recommend working with a financial advisor to take stock of your cash and other
investments. It's a good idea to pay off an equity loan prior to the next tax
season if you have other investments.