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Tax Planning Ideas for 2018


2018 Tax Planning Ideas

Even though 2017 tax returns were just recently filed, it’s never too early to start planning for the current year. 2018 is even more challenging in light of the largest tax overhaul in three decades. Since each taxpayer’s personal situation is different, the recommendations presented are designed to be general in nature.  Here’s a few tax planning ideas that may work for you. 

 Itemized Deductions vs. the Standard Deduction

If you usually itemize your deductions, determine if it’s still advantageous to itemize or if using the standard deduction is more beneficial. The standard deduction for 2018 is as follows:

Filing Status

Standard Deduction Amount

Single

$12,000

Married Filing Jointly & Surviving Spouse

$24,000

Married Filing Separately

$12,000

Head of Household

$18,000

 

Also, the additional standard deduction if you are age 65 or older is $1,300. Keep in mind that you can deduct either your itemized deductions or the standard deduction, whichever amount is larger. The key takeaway is that more taxpayers will be using the standard deduction starting in 2018 and forward. 

If it turns out that you will use the Standard Deduction, a long list of items will no longer offer tax benefits among which are:

  • Medical expenses that exceed 7.5% of your adjusted gross income
  •  State income taxes
  • Real estate taxes
  • Mortgage and home equity line of credit (HELOC) interest
  • Mortgage insurance premiums
  • Charitable contributions
  • Unreimbursed employee expenses
  • Tax preparation fees
  • Investment management fees

The list is not complete but does cover most of the more common itemized deductions.  

What planning ideas should you consider if the standard deduction offers a bigger tax break than your itemized deductions?

 

Reconsider Mortgage and Home Equity Line of Credit Debt

Consider paying off your mortgage and especially your home equity line of credit. With interest rates on the rise and most home equity loans set up with adjustable interest rates, working to pay these loans off is advised.

Paying off your mortgage is a little more complicated especially if you’re locked in at a low fixed interest rate. Then the decision really boils down to the opportunity cost of what you can earn on your money versus the interest cost you are paying on the mortgage. Also, qualitative factors such as “I just want to be debt free” also come into play.

Deduct Investment Management Fees from the Appropriate Account

The strategy of paying all of your investment management fees for your various accounts either directly or by having all the fees deducted from your taxable account is no longer advantageous. You’re better off allowing the traditional IRA to pay its own fees directly since payment is made with pre-tax dollars. Continue paying investment management fees for taxable and Roth IRA accounts either directly or out of an outside or taxable account. It doesn’t make sense to have Roth IRA fees paid using Roth funds because you’d be paying fees with tax-free money. The fees should also be paid from an outside or taxable account if available.