2018 Itemized Deduction Changes

Due to the recent tax law changes, many more taxpayers will be taking the standard deduction vs itemizing for 2018. The standard deduction  for 2018 is $24,000 for married filing jointly taxpayers (up from $12,700 in 2017). Significant changes to itemized deductions take effect this year. In order to itemize your deductions, the total of those must exceed the allowed $24,000.

  • Medical Expenses – remain deductible to the extent they exceed 7.5% of AGI (must exceed 10% of AGI beginning in 2019).
  • State & Local Taxes (includes state income tax, real estate tax and personal property tax) – limited to $10,000 for both single and married filing jointly taxpayers.
  • Mortgage Interest – interest on loans up to $750,000 of new acquisition debt.
  • Charitable Contributions – the 50% limitation has been increased to 60% for 2018.
  • Miscellaneous – expenses that exceeded 2% of AGI that were deductible have been eliminated. Employee business expenses, investment advisor and tax prep fees are no longer included as itemized deductions.
  • Phase Out – high income taxpayers were subject to phase out limits of itemized deductions previously but the phase out has been eliminated for 2018 – 2025.

 

For further information regarding tax law changes, please contact Jaclyn Ellis, CPA at jellis@bwtpcpa.com or 314-576-1350.

Required Minimum Distributions to Charity

If you are over age 70 1/2, you may be able to reduce your adjusted gross income (AGI) and receive a tax deduction for donating to your favorite charity. Generally, taking a required minimum distribution (RMD) from your traditional IRA increases your taxable income. However, you can choose to have your RMD send directly to a charity which is not included in your AGI. Even more beneficial, this good deed will qualify as a charitable contribution.

Much has been in the news regarding the new tax law and the increase in the standard deduction for 2018. For a married couple filing a joint return, this amount is $24,000. This means your itemized deductions, which include charitable contributions, would have to exceed $24,000 before you receive any benefits.

For a couple whose RMD for 2018 may be $40,000, they can decide to send any or all of the distribution to a charity. Choosing to donate $25,000 will allow them to itemize their deductions and only increase their AGI by $15,000. The limit on the tax free transfer to charity is $100,000 each year.

For questions or additional information, please contact Jaclyn Ellis, CPA at jellis@bwtpcpa.com of 314-576-1350.

2018 Income Tax Projections

Major tax changes are taking place in 2018 as a result of the Tax Cuts and Jobs Act passed on December 22, 2017. These changes will affect both businesses and individuals. In order to see how this new law will impact your 2018 taxes, we can provide a projection applying the changes to your personal tax situation using your 2017 income tax data. Any income tax projections and tax planning or consulting services will be billed at our standard hourly rates.

If you like to take advantage of this opportunity to plan for the rest of 2018, please contact Jaclyn Ellis, CPA at jellis@bwtpcpa.com or 314-576-1350 to begin the process.

529 Plans

A 529 plan is a tax-advantaged investment account offered in the United States as a means to save for higher education expenses for a beneficiary. Many states offer their own version of a 529 plan.

529 plans are no longer just a tax effective means to save for college. Among many changes in the recent Tax Cuts and Job Act is a provision allowing you to distribute up to $10,000 per beneficiary during the taxable year for tuition expense incurred in relationship to a public, private or religious elementary or secondary school.

Most states, including Missouri, allow a deduction from your state taxable income for making contributions to state qualified 529 plans. Missouri allows this deduction for up to $8,000 per taxpayer, per year for contributions made to any state sponsored plan.

Beginning in 2018, you can now take tax free distributions from the account for qualified tuition expenses for Kindergarten through 12th grade, so long as you do not exceed $10,000 per beneficiary.

If you have any questions about 529 plan contributions, please contact Jaclyn Ellis, CPA at 314-576-1360 or jellis@bwtpcpa.com.

Last Minute Tax Saving Strategy for 2017

Tax deduction

President Trump’s goal is to sign a new tax bill into law by Christmas 2017. It appears many changes to our current tax law are inevitable.

Both the Senate and the House of Representatives plans will remove the state and local income tax deduction from federal itemized deductions. In fact, many Americans will no longer itemize at all as the standard deduction appears to be nearly doubling.

As 2017 draws to a close, you may still have an opportunity to take advantage of deducting any state and local income taxes you pay as a federal itemized deduction. The key is to do it by December 31, 2017.

If you think you will owe Missouri taxes upon filing your individual income tax return, its best to get it paid in prior to the end of the year to take advantage of the last year it will reduce your federal tax bill. Unfortunately, this deduction is not beneficial to taxpayers who are subject to alternative minimum tax.

Please consult your tax advisor for specific issues regarding your personal tax situation. If you have any additional questions, please contact Jaclyn Ellis, CPA at 314.576.1350.