With the fourth quarter of the year upon us and given the many changes brought to bear by the Tax Cuts and Jobs Act of 2017, it is the opportune time to consider some very key questions as it relates to your 2018 taxes. The answers to these questions are critical in determining appropriate actions to take before the end of the year in order to optimize your tax situation.

Will the total of your itemized deductions exceed the new higher standard deduction?
The increase in standard deduction will result in an emphasis on implementing a stacking strategy for itemized deductions. Under this strategy you would strategically accelerate deductions into
a single tax year in order to itemize deductions in that year while then utilizing the standard deduction in other years.

What marginal tax bracket will you fall in, and how close are you to the next marginal tax bracket?
The temporary reduction in federal tax rates will result in an emphasis on implementing a tax bracket utilization strategy. Under this strategy, you would consider strategically accelerating income into a tax year (i.e. Roth IRA conversion, exercise of stock options, realizing capital gains, etc.) in order to take full advantage of potentially lower federal tax rates.

Do you have Qualified Business Income for purposes of the new 20% deduction?
If you generate business or rental income through a sole proprietorship, S Corporation, LLC, or Partnership, it is important to understand if or how it could qualify for a 20% deduction in accordance with recently published IRS regulations. The deduction is subject to various limitations, which include the type of business you conduct, amount of taxable income you report, the amount of wages you pay, and the amount of capital invested in tangible business assets.

Do you live in a state (i.e. Minnesota) that has not conformed to the changes in federal tax law?
Many states have yet to conform to the federal tax law. For example, many residents of Minnesota will still itemize deductions for purposes of Minnesota income tax reporting even though they will utilize the standard deduction for federal reporting. As a result, we are recommending that taxpayers continue to track all deductions as they have in the past even if they expect to utilize the standard deduction on their federal tax return for 2018.

We will be working with clients to answer these important questions during upcoming scheduled tax planning meeting and conversations. Please contact us if you have any related questions or if you’d like to discuss how the new tax law will impact your specific situation.