By Jeffrey R. Wolfe, Senior Vice President, Manager of Wealth Planning Strategies

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So, another tax season has come to an end.  This one, though, was a little unique as it was the first tax season under the Tax Cuts and Jobs Act of 2017 (“Tax Act”).  Were you surprised this year?  Did you have to pay in more than you thought, or maybe you got an oversized refund?  While dealing with taxes is never fun, now is a perfect time to prepare yourself for year two under the Tax Act.

If you found your return led to a large payment or refund, consider reviewing your withholdings on your paycheck.  With lower overall tax rates and higher standard deductions, your withholdings may need updating.  Consider using the IRS Withholding Calculator to do a “checkup” on your paycheck.  It can help lead to a smoother ride and a more predictable tax payment/refund for next year’s filings.

Perhaps you now have a better understanding of how the new Tax Act affected your itemized deductions.  With most deductions eliminated under the Tax Act, and state and local tax deductions limited to $10,000 generally, many taxpayers are just now realizing the consequences of these changes.  Review your return for this year, and determine whether you are likely to itemize or take the standard deduction next year, and plan accordingly.

Part of the itemize/standard deduction calculus often involves charitable giving plans.  If you are right on the cusp of itemizing, consider “bunching” your charitable giving in one particular year.  For example, if you give $5,000 a year to charity, but that amount keeps you below the itemizing threshold, consider making a $10,000 gift in one year, then take the standard deduction in the “off year” of giving.  You can even consider a Donor Advised Fund to manage your giving year to year.

Additional “traditional” tax planning techniques should also be reviewed yearly, such as:

  • Consider whether to take certain gains or losses in this taxable year. Choosing the appropriate time to take such actions can help control your potential tax liabilities.
  • Look at fully funding employer sponsored plans and/or tax-deductible IRAs. Maximizing these contributions may lower your tax bracket.
  • Review Roth retirement planning options. Converting existing pre-tax assets to a Roth IRA, funding a Roth IRA, or making Roth salary deferral contributions through your 401(k) plan now may provide more after-tax cash flow during retirement. Just a reminder, the new Tax Act does not allow you to recharacterize a Roth conversion, something that could be done previously.
  • Consider tax-exempt investments and accounts like tax-exempt municipal bonds or life insurance.

Tax planning is always a moving target.  For most people, incomes and deductions are always changing.  To keep surprises at tax time to a minimum you need to review whether what you’ve done in the past is still appropriate going forward.  Work with your tax advisor and your Benjamin F. Edwards & Co. financial advisor to put together a plan that is right for you.