By Jeffrey R. Wolfe, Senior Vice President, Manager of Wealth Planning StrategiesPrint This Post
The end of the year is a wonderful time to review your tax situation for opportunities to pay less taxes or pay taxes at a lower rate. Review your portfolio, other investments and your projected income to see where you may fall in the new tax regime. If you can, work with your tax advisor to see whether you should take or defer certain gains or deductions in this year or the next.
For example, you may be able to take a gain on an investment this year, or postpone it until January. If you think your tax rate will be the same or lower next year, it may make sense to postpone the gain until 2019. Similarly, if you are considering making a charitable donation and you expect your income (and tax rate) to be lower next year, consider making the donation in 2018 to offset your higher tax rate for this year. If you pay state estimated taxes, you could make your last quarterly payment in December rather than January to take the deduction in 2018, or vice versa. Ultimately, if you can control when to take a gain or deduction, choosing the appropriate time to take such actions can help you control your potential tax liability year over year.
These techniques are especially critical to review given the increase in the standard deduction for this year. Recall that the new standard deductions are $12,000 filing single; $24,000 married filing jointly. Moreover, itemized deductions have been minimized as well. Generally, other than charitable deductions, mortgage interest, and state and local taxes (with a cap on state and local deductions being $10,000), most itemized deductions have been eliminated. Given these significant changes, accelerating or deferring gains and losses is even more critical. If you are near the thresholds for itemizing, you may want to make bigger charitable gifts or an extra interest payment on your mortgage this year and plan on taking the standard deduction next year.
These are complicated and time sensitive decisions. Please remember, Benjamin F. Edwards & Co. does not provide tax advice, so it is important to consult with your tax professional for guidance tailored to your specific situation. Doing so may lessen the tax blow for this year and the year to come.