Frequently our posts here act as a diary, for clarification, look back, and for possible reference in the future.
With tax season officially ending today – thank goodness – we felt like no better time than the present to pin our thoughts on what we saw this tax season.
So here we go…
2018 New Tax Law Review and thoughts
Initially as we entered the tax year, we heard rumors and complaints of higher taxes – which on our first few returns, we found inaccurate.
As we carried through tax season we found that there were winners and losers and we will try to explain in greater detail for future reference for this time next year and for possible planning… for the record it way generally very hard to anticipate the winners from losers in advance as each situation seemed to have it’s own twist.
This is in general and very broad terms – as there are always exceptions, especially when dealing with taxes..
First the losers:
Single Taxpayers – With many deductions no longer allowed, simple standard deduction caused lower write offs in many cases.
Folks with heavy real estate right offs – SALT -State and Local Tax – deduction limited many – For the record clumping did not work as well as we had hoped.
Folks and heavy tax state residences – Again due to SALT deduction, we saw limits being reached frequently.
Folks that just fell under the itemized deductions due to limitations from the new tax laws – Limited deductions held many under the standard deduction.
Charitable donors – but not heavily charitable donors – standard deduction comes in play.
And the winners:
Large Families – Child credit in play here – $2k credit per child helped.
Married couples – especially those that had been filing non-itemized returns in the past-higher deduction in play here – a net gain in the higher standard deduction.
Non Itemizers – Those filing regular standard tax returns, usually found meaningful benefit.
Business owners with qualified pass through taxes – lower tax rate at work here.
Real estate holdings that were not high property tax but possibly had meaningful interest expense – Although SALT limited much, interest expense was not limited in many cases.
So what have we learned?
Given the lower marginal tax rates in certain situation it likely makes sense to accelerate IRA distributions if one is in the appropriate asset position.
Heavy property tax real estate holdings may have limits, the SALT limit will greatly affect the deductions of such holdings.
While salt clumping – The clumping the property taxes-may not work as well, charitable deduction clumping will work very effectively but needs planning. Clumping years of charity gifting to get over the standard deductions may provide greater benefit.
In closing, the thing we learned the most –
The new tax forms and all of their crazy schedules are horrible!
The effort to go to a simplified tax return was nice, however it over complicated the details of any non-simple tax return.
We hope that in the future many of the schedules are enlarged or pulled to the front as it is very difficult to reconcile and reconcile tax returns with the current forms.
Have a Great “Last Unofficial” Tax Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
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