HOW you will benefit from standard deduction versus itemized deduction. To maximize your deduction, you take the larger of standard deduction or total amount of itemized deductions by bunching itemized deductions in 2018 and taking standard deduction in 2019, and so on.
• Standard deduction: $12,000 for single or married filing separate; $24,000 for married filing jointly; and $18,000 for head of household.
Additional standard deduction: There is additional standard deduction of $1,300 for taxpayers of at least 65 years old or are blind, and $1,600 if both at least 65 years old and blind.
• Personal exemptions: There is no more personal exemption deduction for yourself and dependents. But there is substantial increase in standard deduction in item 1 above.
• Alternative minimum tax (amt): You may be eligible for a credit if you do not have taxes due now and paid amt in prior year. The exemption amount increased to $70,300 for single, $54,700 for married filing separate, and $109,400 for married filing joint. The exemption amount starts to phase out at $500,000 or $1,000,000 for married filing jointly filers.
• 2018 income tax bracket: a)10% for single or married filing separate up to $9,525, for married filing joint up to $19,050, and for head of household up to $13,600; b)12% for single or married filing separate from $9,526 to $38,700, for married filing joint from $19,051-$77,400, and for head of household from $13,601 to $51,800; c)22% for single or married filing separate from $38,701 to $82,500, for married filing joint from $77,401 to $165,000, and for head of household from $51,801 to $82,500; d)24% for single or married filing separate or head of household from $82,501 to $157,500, and for married filing joint from $165,001 to $315,000; d)32% for single or married filing separate or head of household from $157,501 to $200,000, and for married filing joint from $315,001 to $400,000; d)35% for single or head of household from $200,001 to $500,000, for married filing joint from $400,001 to $600,000, and for married filing separate from $200,001 to $300,000; e)37% for single or head over $500,000, for married filing joint over $600,000, and for married filing separate over $300,000;
• Capital gains tax: Capital gains tax rate of 20% applies at taxable income of $425,800 for single, $479,000 for married filing joint, and $12,700 for trust.
Consider sell non-earning stocks to generate capital loss and offset capital gains.
• Health coverage reporting: Your tax return is not considered complete by the IRS if you do not report coverage in 2018. In 2019 the shared responsibility payment is reduced to zero.
• Charitable Giving: Charitable gifts to qualified public charities now deductible up to 60% (from 50%) of adjusted gross income with a carryforward of five years for any excess not taken in the current year. Consider bunching donations in alternating years more in one year to get a tax deduction benefit. Here are a few considerations:
• Have the charity sell by donating appreciated property.
• Utilize donor advised funds for this purpose.
• You are 70 ½? Direct qualified charitable contribution may qualify from individual retirement account directly to charity.
• Retirement plans: Maximize retirement plan contributions in 2018 to minimize income and establish qualified retirement plans like SEP IRA or 401(k) employee deferral with profit sharing plan component. If you are at least 50 years old in 2018 the limit is $24,500($18,500 if younger) for 401(k).
The new law prohibits re-characterization from traditional IRA, Simple or SEP to a Roth IRA starting January 1, 2018.
• Employer sponsored programs: Take full advantage of pre-tax dollars for child care and medical expenses by taking full advantage of employer sponsored group plans.
* * *
Disclaimer: Any accounting, business or tax advice contained in this communication is neither intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
* * *
Al-os & Associates Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.