5 Tips to Reduce Your 2018 Taxes

by Mitchell J. Smilowitz, CPA

The February issue of the JRB Financial Pulse summarized many of the changes in the Tax Cuts and Jobs Act (TCJA) that are likely to affect you.  In this issue, we offer a few strategies on how you can leverage these changes to the tax code to reduce your taxes.

1. Start 2018 Tax Planning Now

While there are certainly things you can do at the end of the year to reduce the taxes you pay, you will have more control – and more end-of-year options – if you begin your tax planning today. 

2. Boost Your Retirement Savings

We say it all the time – we are a retirement plan after all – but it’s true: increasing contributions to your JRB retirement savings account remains one of the best strategies for reducing your income taxes. Every dollar contributed to your JRB account reduces your taxable income by the amount you contribute up to federal maximums. And, you receive these significant tax advantages while building financial security.

3. Check Your Federal Tax Withholding

The Internal Revenue Service (IRS) recommends that you check your federal tax withholding every year.  The major changes in the tax code created by the TCJA make it especially important to check this year.

The IRS has a handy online withholding calculator to help you determine how much to withhold so that the amount of money you pay in federal taxes during the year approximates the amount you will owe.  To get the most out of the calculator, you’ll need a current pay stub and your most recent federal income tax return. You do not need to enter any personally identifiable information to use the calculator. Using results from the withholding calculator, fill out a new IRS Form W-4 and give it to your employer. 

It is especially important to review your withholding if you received a big tax refund – essentially an interest-free loan to Uncle Sam. You may also want to speak with your tax advisor before updating your IRS Form W-4.

We’re already more than one quarter through the calendar year; the sooner you update your withholding, the more impact you will have on your 2018 taxes.

4. Decide Now if You Plan to Itemize

The TCJA nearly doubled the standard deduction to $12,000 for individuals and $24,000 to couples filing jointly.  Because the standard deduction is much higher, it is more important for taxpayers who generally itemize to determine whether it will be advantageous to itemize this year. Begin by considering:

  • How much you will pay out-of-pocket for medical expenses in 2018. You can itemize medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI).
  • The mortgage interest deduction is changing for new mortgages.  The mortgage cap was lowered from $1 million to $750,000.  Interest deductions on home equity loans have been eliminated unless the loan is used for home improvement.
  • The deduction for State and Local Taxes has been capped at $10,000. In many parts of the country this can dramatically reduce the amount you can itemize and deduct.
  • Charitable deductions increase from 50% to 60% of AGI.  This includes donations of clothes, toys, cars, etc., as well as cash contributions.
  • Note that unreimbursed business expenses can no longer be deducted.

If it looks like itemizing may make sense, keep detailed receipts of your expenses to justify your deductions. 

For more information on these and other tax changes made in the TCJA, see our article, How Tax Reform Affects You.

5. Determine Whether You Qualify for Tax Credits

Tax credits allow you to reduce the taxes you owe.  Are you eligible for the Child Tax Credit?  Dependent Care Credit? Lifetime Learning Credit? 

While there are certainly things you can do at the end of the year to reduce your tax burden, the strategies you put in place now make it easier and give you more flexibility to reduce the taxes you pay when filing your tax return next year.