Below are some things to consider before year-end that may help you maximize the benefits and minimize the burdens of the new tax law.
Use the IRS Withholding Calculator to help determine if you need to change your current withholdings before year-end to more closely match your expected tax obligations. The tax savings you anticipate might have already been given to you through your withholding. Take a few minutes to perform a paycheck checkup to protect yourself against an unexpected tax bill or penalty!
The Tax Cuts and Jobs Act significantly increases the standard deduction, so many taxpayers may no longer be itemizing. Compare the itemized deductions to which you may be entitled to this year to the new standard deduction. If you won’t benefit from increasing itemized deductions because the standard deduction will be greater, consider bunching charitable contributions into every other year, setting up a donor-advised fund, or, if over 70-1/2 years old, making charitable contributions through IRA distributions. If you are taking the deduction this year, add to it by donating unused items to charitable organizations or by scheduling routine medical procedures and refilling medical prescriptions before year-end.
The rules surrounding the new 20% deduction for “qualified business income” from a partnership, sole proprietorship, or S corporation will create more IRS scrutiny of wages paid to shareholders of S corporations. Make sure as an S corporation owner, your salary meets the “reasonable compensation” standard – what you would pay someone else to do the job you do. If you have not taken a salary, you should do so by the end of the year.
As the 2019 Marketplace Open Enrollment period draws closer, remember that the Tax Cuts and Jobs Act eliminates the shared responsibility payment. Individuals failing to maintain minimum essential health care coverage will no longer be penalized for years after 12/31/18.
For divorces and legal separations after 2018, alimony payments will no longer be deductible by the payer nor included as gross income by the recipient. If you are in the middle of a divorce and will be ordered to pay alimony, consider finalizing the divorce before the end of 2018. However, if you will be the recipient of alimony payments you may want to hold off finalizing the divorce until 2019.
We hope you found these tips helpful. It would be our pleasure to assist you in applying some of these strategies to your unique situation, so please make an appointment to stop by our office.
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