Plan for tax season now. Here are 15 questions to start the process.
Let’s be honest. Preparing for tax season is never a “fun” process. Deadlines always loom and just when you think you’ve got a handle on your taxable income and deductions, the tax codes change and you start all over again.
This is especially the case since the Tax Cuts and Jobs Act passed in 2018. As the largest tax overhaul in more than 30 years, TCJA came with significant changes to tax codes that are important for you to know.
We’ll take a deeper dive into many of these changes in upcoming articles, but in the meantime, here are 15 questions to jump-start your tax planning process so you can make your best financial decisions:*
- Starting a new business? Be sure to discuss the business entity type with one of our CPAs to determine if you can take advantage of the new qualified business income deduction.
- Have unreimbursed employee business expenses? Now that these deductions have been eliminated under the TCJA, consider asking your employer to switch to a reimbursed employee business expense plan – where you incur expenses in connection with your job and your employer reimburses you after the fact. Using this approach, expenses will be deductible by your employer and the tax impact on you will be neutralized.
- Buying a new home? If you’re looking at the high end of the market be aware that the new tax law limits the mortgage interest deduction to interest paid on home loans not to exceed $750,000.
- Own rental property? Rentals may qualify for the new qualified business income deduction. Under a safe harbor provision, taxpayers who have performed 250 or more hours of qualified rental services may be eligible. A main requirement of this provision is keeping detailed records and logs of services performed for the rentals. Our CPAs can talk you through what qualifies as rental services.
- Planning to retire soon? Consider front-loading your charitable giving to use your current higher tax bracket to your advantage by making a large contribution now to a donor-advised fund. Rather than making smaller gifts from existing accounts throughout retirement, these funds hold your money until you designate giving amounts in the future.
- Have kids in private school? Ask us about establishing a tax-advantaged 529 plan to utilize new rules that allow the use of up to $10,000 per child per year to pay for tuition for grades K-12.
- Looking to convert your traditional IRA to a Roth IRA? Consider a qualified charitable distribution to exclude a portion of the funds from taxable income and lower the tax cost of conversion.
- Considering donating appreciated property to a charity? Donate the property itself rather than selling it and contributing the cash proceeds; this way you avoid taxable capital gains upon the sale of the property.
- Preparing for divorce? Be aware that changes in the tax laws now prohibit a taxpayer from deducting alimony payments, and you may want to adjust your withholding or tax estimates accordingly.
- Owed tax in 2018? Ask us about adjusting your payroll withholding or setting up estimated quarterly payments to reduce your tax bill at the end of the year.
- Covered by a high-deductible health insurance plan? Consider setting up a health savings account or HSA; you make tax-deductible contributions to this savings account that can be used for future medical expenses.
- Have kids in child care programs? Ask your employer if it offers a dependent-care assistance program, which reimburses you for child care expenses and is excluded from taxable income (up to $5,000).
- Have investments that have declined in value? Consider selling them at a loss in years that you have capital gains to offset those gains, or to potentially reduce noninvestment income by up to $3,000 if losses exceed gains for the year.
- Own your own business? Be sure to separate fully deductible travel, lodging and continuing education expenses from meal and entertainment expenses.
- Have substantial personal investment income? You may be able to reduce the 3.8% Medicare tax on net investment income using strategies such as increasing contributions to your retirement plan and/or IRA, gifting investment assets to family members in lower tax brackets or a charity, investing in tax-free bonds, or reducing capital gains through tax-free exchanges and harvesting capital losses.
No one (except tax professionals) likes to talk taxes, so JCCS’ tax team stands ready to help make the process as effortless and positive for you or your business as possible. Contact us to set up an appointment.
* This article is not a complete listing of all the details related to the tax topics listed; please contact your CPA for a more detailed discussion regarding these items.