With basically four months left in 2018, it is important to start thinking NOW about tax planning for 2018.  The Trump Tax Cut & Jobs Act made serious deviations in the tax system.

Whether you are an individual or a business it is time to take a deep dive into what 2018 will look like for you.  Ignorance will not be your friend at tax time.  Get focused now and be proactive in your planning.

These are my five ways to Eliminate Tax Shock in 2019.

Check your withholding

The Tax Cut & Jobs Act started showing up in your paycheck earlier this year.  The IRS did an overhaul of the tax withholding tables and the majority of people have not changed their withholdings.  Get your last paystub and take a close look at how much you have paid this year.  Do a tax projection to see if you are over-withholding.

From a client meeting this week.  We prepared an estimate and they are over-withheld by nearly $6,000.   We changed their W-4 to lower the withholdings for the remainder of 2018 to reduce the overpayment.

Check your retirement savings contributions

Once you make the change to your withholding, then Increase your retirement contribution. This has a multiplier impact.  Increase your retirement plan contribution and you are increasing your net worth and saving more taxes.  The maximum for a 401(k) this year is $18,500 and $12,500 for a SIMPLE IRA.  Yes, if you are over 50 there are catch-up contributions as well.  $6,000 for a 401(K) and $3,000 for a SIMPLE IRA.

Pass the SALT

The Tax Act introduced a cap to the State and Local Tax deduction. (SALT) It is $10,000.  This will impact your itemized deductions and I know that many of our clients will take the standard deduction of $24,000 for married couples and $12,000 for single versus itemizing deductions.

Make a Charitable Donation from your IRA

Are you taking a Required Minimum Distribution (RMD) and are you making charitable contributions?  If you answer yes to both then you need to get with your CPA and your Financial Advisor and have a conversation about making a direct contribution from your IRA.  The result  – Both the IRA distribution and the charitable contribution are excluded from income and deduction.

Can you take the 20% deduction for your QBI

What is QBI?   Qualified Business Income

The good – The new QBI deduction — referred to as the Section 199A deduction or the deduction for qualified business income — was created by the Tax Cuts and Jobs Act. The deduction is available for tax years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018 federal income tax return they file next year.

The Bad – Depending on your threshold amount for total income you could potentially lose the entire 20% deduction without proper planning.

Ultimately, the key point is to acknowledge that the new Section 199A creates a bucket full of planning opportunities.  If you are a sole proprietorship, a partnership, trust or an S Corporation then planning is key to ensure that you get your share of the 20% exclusion.  Failure to plan may result in ugly results.

If you want to set up to look at tax planning strategies before year-end, please go to Tannery & Company to set up an appointment.

Back to School has started.  It is time to school yourself in the 2018 Tax Law.  Get an A not an F.

Michael Tannery CPA, CDFA® AIF®

Registered Principal

Tannery & Company

Tax – Accounting – Wealth Management

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