by?Andrew D. Schwartz, CPA
Let’s start with the usual advice we dole out each year.
Max out your 401k or 403b at work.
- The retirement savings accounts remain the best tax shelter available to working people
- Salary Deferral Limit increased to $18.5k for 2018
- People 50 or older can contribute $24.5k
- Can borrow against your 401k under certain circumstances if necessary
You might also consider increasing gifting to kids and grandkids, including for 529 plans, since the Gift limit increased to $15k per gift recipient for 2018.
Who is saving money under the new tax rules?
Let’s just say that based on what I’ve seen so far, the more you earn the more you save. Married couples with kids earning good money seem to see the largest tax savings. The middle class won’t be realizing much or a tax savings at all
What are some of the the new tax breaks?
- Lower tax rates across the board
- Child tax credit doubled in amount to $2k per child under the age of 17 while the income limit almost quadrupled to $400k for married couples and a new $500 per older child and other dependent was added
- The dreaded Alternative Minimum Tax won’t apply to many people any more
Which popular tax breaks got eliminated for 2018?
- State and local taxes in excess of $10k annually
- Job related moving expenses
- Employee Business Expenses for W2 employees
- Investment fees and tax prep fees
- Alimony for divorces finalized as of 1/1/19
- Mortgage interest on new loans in excess of $750k .
- Interest on equity loans not used to improve that residence.
What about deducting entertainment as a business expense?
The deduction for entertainment expenses is no longer allowable. Some speculate that this is due to Trump not being awarded an NFL franchise when the USFL ended and he wanted his New Jersey Generals to join the NFL.
Please note that business meals continue to be tax deductible.
Any Advice Regarding the New Tax Rules?
- Many of the rules are set to “sunset” in 7 years
- Even so, learn the rules
- Start tax planning in 3-year blocks – especially if you are married, don’t have a huge mortgage, and give to charity or have significant medical expenses
- Time your mortgage payments to make 13 payments in years you will itemize
- Bunch your medical expenses if you will exceed the 7.5% threshold (in 2018 increasing to 10% in 2019) and will itemize
Bunch charitable donations to every 3 years. Take advantage of Charitable Gift Trusts to maximize deductions while still spreading out donations.
The business world becomes more complicated every year. Yet most CPAs and other professionals continue to operate as generalists and serve a handful of clients in a wide range of industries.? That being said:
- Why would a prospect go to a generalist when they can work with a specialist for a similar value?
- Why would a professional choose to operate as a generalist when there are enough potential clients in their area of interest to keep busy by being a specialist?
- And why wouldn’t a professional want to build a much deeper knowledge base within a niche to be able to work more effectively and give their clients better information and advice?
Andrew Schwartz, C.P.A., has built a niche CPA practice that has grown organically, consistently, and predictably each and every year since 1994. His specialty firm continues to grow exponentially due to its strong and recognized brand for providing tax and accounting services to healthcare professionals and their practices.
In this September 25th session, Andrew will share his insights and tips on how to organically build a niche practice.? The session is sponsored by McLane Middleton, 300 Trade Center, Suite 7600, Woburn, MA, and will run from 8 am to 9 am on Tuesday September 25th.
Please click here to register.
By Richard Schwartz, CPA
Are you a Trump Tax Bill “tweener”?? If so, you are a taxpayer making sizable charitable contributions each year, but with the new tax law recently enacted at the end of 2017, no longer able to itemize your deductions, and therefore, will lose out on the tax deduction for those charitable contributions you will be making in the next year.
With the new tax law effective for taxpayers beginning in 2018, a married couple is limited to claiming a maximum deduction of $10,000 for combined real estate taxes plus state and local income taxes. Mortgage interest and charitable donations remain tax deductions. However, if your mortgage is paid off or your annual deduction for mortgage interest is small, you may no longer be itemizing your deductions going forward, and simply claiming the new standard deduction set at $24,000 for a married couple.
If you are one of these “tweeners” having no mortgage on your house, limited to a $10,000 deduction for state and local taxes, and donating less than $14,000 to charity annually, you will no longer be itemizing your deductions and will simply claim the $24,000 standard deduction. Thus, the new tax bill has indirectly eliminated the tax incentive for many high-income earners, who fall into this category, from making donations to charitable organizations.
Going forward, this group of taxpayers may want to consider establishing a Donor-Advised Fund (DAF).? As defined by Wikipedia, “a donor-advised fund is a charitable giving vehicle administered by a public charity created to manage charitable donations on behalf of organizations, families, or individuals. To participate in a donor-advised fund, a donating individual or organization opens an account in the fund and deposits cash, securities, or other financial instruments. They surrender ownership of anything they put in the fund, but retain advisory privileges over how their account is invested, and how it distributes money to charities.”
With a DAF, the donor takes a current year tax deduction for the full amount contributed to the fund in that year, which includes both cash and appreciated assets .? Please note that if you donate appreciated stocks and mutual funds into the DAF you set up, you claim the tax deduction based on the fair market value of the securities donated, and also avoid paying any capital gain taxes on those appreciated assets.
Ideally the donor would frontload several years of donations into one year, allowing the donor to exceed the $24,000 standard deduction for that one year, and then making no charitable donations over the next several years (and claiming the standard deduction on their tax return in those future years), but “advising” to which charitable organizations the DAF would grant funds to over those next years.
Establishing a DAF is a way to allow taxpayers the tax benefit of contributing and deducting charitable donations, where the new tax law may prevent the tax deduction otherwise.
To find out more about this tax saving benevolent opportunity, check out these following popular options: