The Tax Cuts and Jobs Act did not fundamentally reform the individual income tax system. However, explains Marcela Kane Lantrip, it did change enough provisions to alter the tax planning landscape beginning in 2018. The good news is that many taxpayers will see their federal taxes go down this year. However, not everyone will see their tax bill drop because limitations or wholesale elimination of certain deductions may offset the benefit of slightly lower tax rates.
In spite of the changes, one thing remains unchanged: Year-round holistic tax planning and a sound understanding of the character and timing of income and deductions can help identify opportunities and strategies to achieve a more efficient tax result. The following are a few tips that can make your end-of-year tax planning easier.
Having a good estimate of where your income might fall can help you to strategize on areas such as how and when to receive income, and maybe even whether to tie the knot, explains Marcela Kane Lantrip. While the law modestly lowers individual income tax rates across the board and sets the top marginal tax rate at 37 percent, it is worth noting the narrow gap between the thresholds where the top 37 percent tax bracket kicks in for individuals (i.e., $500,000) and for married couples (i.e., $600,000).
Additionally, because of the new tax rates, you may also want to update the tax withholdings from your paycheck. The IRS recently released an updated calculator to help tax payers figure out whether they need to file a new W-4 form with their employer or not.
Many taxpayers, particularly those without mortgage debt, may discover that taking the standard deduction (i.e., $12,000 for individuals and $24,000 for married filing jointly) is better than itemizing, says Marcela Kane Lantrip. Taking the standard deduction means streamlined tax preparation and less record keeping. The Tax Policy Center estimates that barely 10 percent of households will itemize deductions in the future. By following year-end tax tips, you can prepare in 2018 to save on taxes due in April of 2019, reminds Marcela Kane Lantrip.