What you need to know about 2018 tax changes
April 5, 2018 | Carolyn LaViolette
Congratulations! You finished your 2017 taxes, and now you don’t have to think about taxes again until next year, right? Wrong.
Since the Tax Cuts and Jobs Act of 2017 went into effect, there have been a number of changes that will affect your 2018 taxes. This means you’ll want to evaluate any tax-related activities now — and throughout the year — to ensure they’re in line with the new tax laws and avoid any unpleasant surprises during next year’s tax filing.
The Minnesota Society of Certified Public Accountants (MNCPA) put together a few tips and information to help you navigate some of the changes.
What can you expect when filing 2018 taxes?
“With the new tax laws, each person will be affected differently based on their specific situation,” said Ann Etter, CPA, CFP, MBA of Goodney & Associates, PA. “But a few of the biggest changes people will see are the loss of personal exemptions, changes in itemized and standard deductions, and updated tax brackets.”
Starting in 2018, personal exemption has been eliminated, and the child tax credit has changed. For qualifying children 16 and younger, the credit is raised to $2,000 each, and dependents 17 and older are allowed a $500 credit each.
You’ll also notice a change if you typically itemized your tax deductions. Itemizing may no longer be your best option with the increase in the standard deductions, so it’s important to review the new restrictions and changes. Those who are married and filing jointly will see an increased standard deduction of $24,000, up from $12,700, and those who are single and filing separately will see an increased standard deduction of $12,000, up from $6,350.
The taxes you may deduct are also capped at $10,000 per year. The cap includes income, real estate and personal property taxes. This cap may also reduce the number of people who itemize.
Another change -- that you may have already noticed from the slight change in your paychecks since the New Year — is to tax brackets. Consulting a CPA can help you determine how these changes affect you.
Minnesota state tax law conformity -- or lack thereof
The Minnesota Legislature adjourned and Gov. Dayton vetoed two tax bills that would have addressed state tax conformity to the new federal tax code. Unless a special session is called, Minnesotans will see many inconsistencies between their federal and state returns.
“In the past, Minnesota has conformed -- or partially conformed -- to federal tax laws changes,” said Todd Koch, CPA, MBT, CFP of John A. Knutson & Company PLLP. “This time, on the heels of the biggest federal tax law change this century, an agreement was not reached on how these changes should impact Minnesota taxpayers.”
For more on this topic, please read our post, "What Minnesota taxpayers need to know about nonconformity."
Strategies for planning ahead
Starting to plan for next year’s tax season now can help you make decisions to lower your tax burden in the future.
For example, if you itemize your deductions, but don’t quite make it to the standard deduction amount, you could consider a “bunching” strategy. This means bundling two years’ worth of charitable donations into one year, essentially doubling your donation amount every other year. Also, consider adjusting other deductible expenses to maximize them into the same year that you double your charitable donations. This results in itemizing every other year and taking the standard deduction in the alternating years.
If you plan to no longer itemize, continue to track charitable donations. Minnesota has typically given a deduction for charitable contributions for more than $500. You may want to evaluate new strategies this year with the changes to the tax brackets. For example, if your taxes are decreasing and you have significant amounts of taxable retirement funds, consider taking advantage of the lower tax rate by rolling the funds over to a Roth IRA account.
“With the changes to the tax brackets, it’s also a good idea to take a look at your withholdings to make sure you’re deducting the correct amount of taxes under the new legislation,” said Etter. “Check your withholdings halfway through the year and again at the end of the third quarter. Update your W-4 based on the results.”
Another strategy to consider is for medical expenses. Use a Health Savings Account or Flexible Spending Account, which reduces your taxable income and makes medical expenses essentially deductible.
Need some help?
“There are changes that happen throughout the year that not everyone is aware of,” said Koch. “CPAs keep up with these changes as they occur. We understand that taxes are a process, not an annual event."
CPAs have multiple tools and strategies to help you plan ahead and prepare for your tax filings. A CPA can:
- Run tax projections and compare that with your withholdings to determine whether you are on track or need to alter your W-4.
- Explain the tax consequences of deductible and nondeductible retirement contributions, and which may be the right decision for you.
- Help you minimize your taxable income by analyzing other potential areas to reduce your adjusted gross income.
- Evaluate any life changes (marital status, college-bound kids, home purchase, significant income change, inheritance, etc.) and help you navigate the changes these may bring to your tax situation.
- Provide tips, guidance and strategic plans based on your individual needs.
CPAs work year-round to make sure they are up to date on any tax law changes. Take advantage of their knowledge and ability to help create a customized, tax-efficient plan for you.
Don’t have a CPA? Visit CPAmeASAP.com or call 800-331-4288 to find a CPA today.
Topics: Taxation-Individual, Taxation-Business
Carolyn LaViolette is the MNCPA communications manager, working to enhance members’ professional reputations through content, media relations and public affairs. She is also the MNCPA’s unofficial pianist and has tickled the ivories at multiple MNCPA events. Outside of her love for writing and music, Carolyn spends her time playing with her two daughters, attending Tommie football games with her husband, and memorizing the lyrics to musicals. If you can’t get tickets to Hamilton, she is happy to sing the soundtrack for you. Carolyn can be reached at 952-885-5530 or firstname.lastname@example.org.
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