Strategies for Tax Savings Under the New Tax Law

tax saving strategy, gilmore jasion mahlerWant to save money on your 2018 tax bill? Sure you do! Things have changed dramatically with tax reform, but there are still ways to save.

Many taxpayers will benefit from the reduced tax rates and expanded tax brackets included in the new tax law. The law’s changes also make it less likely that as many taxpayers will itemize deductions. They will opt to use the higher standard deduction, which nearly doubled for individuals to $12,000 with the passage of the new law. The Married Filing Jointly standard deduction increased to $24,000 and the Head of Household standard deduction went up to $18,000.

If you’re among those who will wind up taking the increased standard deduction, be aware that payments for taxes, mortgage interest, and charitable donations will no longer yield any tax savings. But, there are still strategies for some taxpayers to reduce their tax liability while taking the standard deduction and making charitable deductions.

One way to save is using something called a Qualified Charitable Distribution (QCD) when donating to a favorite charity. A QCD allows a transfer of up to $100,000 per year from an IRA directly to a qualified charity. Here’s the catch: it is only available to those who have reached Required Minimum Distribution (RMD) age which is 70½. Any amount processed as a QCD counts towards the Required Minimum Distribution requirement while at the same time reducing the taxable portion of the distribution. By lowering both adjusted gross income and taxable income, the taxpayer has a lower federal tax liability and potentially a lower state tax liability and the charitable organization receives a contribution. 

Some important things to remember when choosing to use a QCD:

  • Notify your tax preparer that this has been done since the custodian of the IRA is not required to specially identify the QCD on form 1099-R. Otherwise the QCD may be accidentally reported as taxable income
  • If RMD payments are set up to be paid automatically, the payment may need to be halted or adjusted to leave funds available for a QCD

Another strategy that applies to taxpayers of any age is so-called “bunching” of tax deductions, or grouping them together to get the most tax benefit. If the total of your eligible medical expenses, allowed state and local tax payments, mortgage interest and charitable contributions is close to the standard deduction, it might be beneficial to bunch itemized deductions every other year so that the total exceeds the standard deduction.

Some other thoughts on “bunching”:

  • Consider getting elective surgeries and expensive dental procedures or buying new glasses all in the same year
  • Prepay real estate taxes to reach the new $10,000 limitation on state and local tax deductions
  • Double up on regular charitable donations every other year

By bunching as many deductions into one year as possible, the total may surpass the standard deduction. On the off years you can take advantage of the standard deduction.

Marie Saner, Gilmore Jasion MahlerTax Supervisor Marie Saner, EA contributed this blog. With Gilmore Jasion Mahler for 14 years, Marie works with individuals and businesses across many industries. She is a member of the Firm’s Construction Specialist Team.

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Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting services and provides comprehensive services including assurance, business advisory, tax, risk advisory and healthcare management. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

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