This year the tax news are designed to give you the guidance needed for understanding how the big new tax
law changes will personally affect you; to dispel some myths that are floating around; and to provide some
basic ideas for tax planning.
2018 Tax Changes for Individuals
Everyone seems to think that the new “postcard” return will make income tax preparation easier! Not true.
The recurring theme in all of my continuing education classes this year has been the increase in time I can
expect to properly complete your return. Here are some of the major changes that have occurred.
The new Federal withholding tables were designed to lower your total tax bill for the year by giving you a
bigger paycheck throughout the year. Unfortunately, they were not designed to give you a refund at year
end, and for those of you that did not heed my warnings to change your withholding, your refund will be very
small (if any) because you already received it in bits and pieces through larger paychecks throughout the
year. One of my simple recommendations for 2019 is that all married individuals fill out a W-4 reflecting
“single and zero” withholding.
The ability to itemize deductions has been dramatically decreased because the new law provides a much,
much larger standard deduction. (You are allowed to deduct the greater of the two). However, I still need to
accumulate the information on your medical, tax, mortgage interest, charity and other deductions in order to
apply the new rules, and to complete your state tax returns.
A major change has occurred on home equity lines and second mortgages, most of which are now no longer
deductible. In order to get your largest deduction, I will need to know much more information on these
amounts than in the past such as amounts borrowed and how they were used.
Employee work-related business expenses are no longer deductible on the Federal and Montana return, but I
may still need the information for your other state return, and if you incur a lot of these types of expenses,
you need to discuss the use of an accountable plan with your employer.
Most home-related energy efficiency credits are now expired, but an incredible 30% Federal credit still exists
for solar, wind and geothermal costs; and a $7,500 Federal credit for buying a fully electric car still applies
through the end of 2018.
If you are retired, over age 70 ½, and have an IRA you must utilize the direct IRA to charity transfer tool to
make charitable contributions. This simple trick can save you hundreds of dollars in income tax.
With over 50% of working Americans now covered by health savings insurance policies, it is of absolute
importance that you start a health savings account, even with $50, and discuss some excellent tax-savings
ideas with us for these tax-beneficial plans. And yes, you were still required to maintain health insurance for
every member of your family for 2018 or face a potential penalty.
Finally, in order to prepare your return this year I am required to obtain all of your W-2’s, 1099’s from
retirement, interest, dividends and brokers, Forms 1095 for health insurance, bank Forms 1098 and any
other official IRS documents.
2018 and Future Tax Planning Ideas
Every year I am told “I pay too much in taxes” or “I want some of the tax loopholes that rich people get”. We
can answer both statements with one answer. Rich people get no more tax deductions or “loopholes” than
anyone else, they just take advantage of what is there to keep their taxes at a low legal level. The single
greatest tax “loophole” that they use, which few average people use to its limit is the ability to defer nearly
$20,000 into a 401-K if your employer has one. If your employer has a 401-K and you are not putting the
maximum deferral in it, there is no reason to even think about other tax planning ideas.
In the current tax era of greatly increased requirements to itemize deductions, a tax “bunching” strategy is
absolutely mandatory. The “bunching strategy” recognizes that the best tax deductions are obtained by
putting deductions in one year rather than spreading them out over several years. For example, in years
where your charitable contributions are very low, hold off until the next year to catch up, then also pay the
full amount of the next year’s contributions in the “catch up” year in order to double your chances of
itemizing. Similarly, few Americans receive medical deductions anymore, but if you incur a large expense for
say, the deductible on surgery, then try to do all of your other medical items in the same year, such as dental
and vision exams, check-ups, etc.
Check into your employer’s handbook to see what employer provided fringe benefits are available.
Taxpayers are often surprised at the available benefits, or at my explanation of what some benefits really