Avoiding Tax Headaches

The tax overhaul that took effect on January 1, 2018, brought with it some pretty big changes that could trip you up if you’re not careful. We saw some serious changes for both small businesses and individuals, and if you want to avoid writing a big check to Uncle Sam next April, here are a few things you need to do.

First, check your withholding. When Congress lowered tax rates for 2018, the withholding tables were also lowered, meaning that less money is taken out of your paycheck. But for many people, the tables were lowered too much, which means that those un-withheld taxes will be due and payable when you file your return in 2019. So it’s a good idea to do a quick tax projection to see if you’re on track to withhold enough.

Second, see if your deductions have changed. One of the big changes involved state and local tax (SALT) deductions. For tax year 2018, these items are capped at $10,000 on your itemized deductions. In past years, you might have been able to deduct much more than that on your federal return. But with these deductions eliminated, you may find that your tax bill is higher for tax year 2018 than it was for tax year 2017.

For others, the cap on deductions will cause them to cross over to the new standard deduction, which went up to $24,000 for married couples filing jointly and $12,000 for single filers.

Third, consider bunching any charitable donations you may be making. If you’re limited to the standard deduction, and you plan on giving to qualified charities for the foreseeable future, you may want to consider front-loading, or “bunching,” your donations in one tax year. So, let’s say you normally donate $5,000 per year to your church, which, in previous years (when you itemized), you were able to write off on your federal taxes. If you’re capped out, what you might do instead—if you can—is make a single $25,000 donation (five years’ worth) in one tax year, thus allowing you to itemize your deductions and write the excess off as a charitable donation.

Finally, know which deductions are no longer allowed. One major deduction that’s gone from your itemized deductions is miscellaneous expenses. In the past, these deductions were allowed if they exceeded 2% of your adjusted gross income. Having them no longer available could be a big surprise to those who normally deduct mileage, entertainment, meals, and non-reimbursed travel, as well as those who normally deduct their investment and tax preparation fees.

These are just some of the many changes to look out for. If you need help with your tax planning, it’s not too late—but time is running short. Contact us if you’d like to speak with someone about your unique situation.

Information presented should not be considered specific tax, legal, or investment advice. You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed. Accordingly, no client or prospective client should assume that the presentation (or any component thereof) serves as the receipt of, or a substitute for, personalized advice from LCG or from any other investment professional.

Raymond J. Lucia Jr. is chairman of Lucia Capital Group, a registered investment advisor and CEO of its affiliated broker-dealer, Lucia Securities, LLC, member FINRA/SIPC. Advisory services offered through Lucia Capital Group. Securities offered through Lucia Securities, LLC. Registration with the SEC does not imply a certain level of skill or training.

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