CPA David Young of the New York State Society of CPA’s discussed how changes associated with the new tax law will impact your 2018 tax return and why now is a great time to begin making preparations Monday during News 8 at Sunrise.
There are several changes resulting from the 2017 Tax Cuts and Jobs Act. “Some of the changes that you want to think about are you’re going to have an increase in your standard deduction,” said Young. “That’s going to go up if you’re Married Filing Jointly to $24,000, which is a big jump, but there’s some drawbacks too. You’ll lose your personal exemptions for yourself, your spouse and your kids. The tax credit for the kids will double, and the threshold will go up to $400,000 if you’re Married Filing Jointly, so that sort of gives you an idea. One of the big changes that effects people here is the state and local income tax is capped at $10,000. That’s something to keep in-mind as we do some tax-planning.”
Young said there are certain strategies you can employ to make the most of your tax return. “Bunching is an easy idea. What you’ll do is sort of keep all of — say, your charitable contributions or medical — and try to put them all in one year, and then maybe try to rotate every one year or two years, depending on your personal situation. One year, you’ll take a standard deduction, and the next year you’ll itemize. That’s what we’re talking about with bunching.”
He added, “Say you have appreciated stock. You can give that stock, and as along you’ve held that for twelve months to a charity, you’re not going to pay the capital gain and you get the tax deduction at the same time.”
Young said if you’re going to be taking the standard deduction you should consider the tax-effected cost of borrowing increased. As a result, it may make sense to pay off your mortgage if you have the funds available.
Many people will be impacted by the new combined $10,000 total cap on property tax, sales tax, and state and local income taxes. Young explained New York State has decoupled – meaning that if your property taxes are higher than the $10,000, if you’re married you may be able to itemize on your New York income tax return even if you take a federal standard deduction.
If you have a second home – to qualify it as a rental property you will need to keep your personal use under 14 days or below 10 percent of the days rented.
The IRS issued a notice announcing forthcoming regulations and guidance clarifying the treatment of income re-characterized for the purposes of working around the new $10,000 cap on state and local tax (SALT) deduction. Thus far, New York, New Jersey and Connecticut have passed legislation designed to enable high income taxpayers to circumvent the cap, with legislation pending elsewhere. In the notice, the IRS emphasized the ‘substance over form’ doctrine, meaning the IRS cares about the actual substance of a payment, and not the name or form it may be given.
Unreimbursed employee expenses are no longer deductible. Young said it would be wise to have your employer set up an accountable plan. You may be able to be reimbursed tax free for these – mileage, travel, meals and supplies.
If you’re working through a divorce 2018 is the year to get your settlement done according to Young. Starting in 2019, alimony paid under a new divorce or settlement agreement will no longer be deductible to the paying spouse – and taxable to the receiving spouse. Note, if you’re paying alimony based upon a divorce agreement from pre-2019, your alimony deduction is grandfathered.
The IRS issued new federal withholding tables for employers to use to calculate the tax withholdings on employee wages. Most taxpayers saw their payroll tax withholding go down, but this is not a one size fits all deal. Young said everyone’s tax situation is different and each person should take the time now to access their specific tax situation.
For more information about smart money decision making, visit the New York State Society of CPA’s website, click here.