Time to get started on year-end tax planning under GOP tax cuts

If you think it's too early to start your year-end tax planning, you're mistaken. With the new tax law in effect, the year-end moves many taxpayers made in prior years won't help on their 2018 tax return. Still, what you do from now through December can reduce the taxes you'll pay when you file your 2018 return.

As you prepare to do what's possible to cut your 2018 tax bill, here are some things to consider that the new law changed:

A new, higher standard deduction

The key thing to keep in mind is that the standard deduction all taxpayers can claim has nearly doubled to $24,000 for married filers, $12,000 for singles and $18,000 for household heads. The tax law expanded some credits for families, but also it pared back or axed many popular tax deductions for those who previously itemized.

A larger child tax credit

The child tax credit has doubled to $2,000 for each dependent under age 17, and up to $1,400 of that is fully refundable to lower-income taxpayers -- so even if you pay zero taxes, you'll still receive this money. More people will benefit because the income limits that apply are also much higher: $400,000 for couples, and $200,000 for all other filers. The credit is phased out for filers with incomes over these limits.

A new $500 credit is also available for each dependent who isn't a qualifying child, but rather is an elderly parent or a disabled child you care for. This credit is nonrefundable, and it phases out under the same income limits as for the child tax credit.

Prepaying certain taxes

The most widely used year-end tax planning strategy is to prepay state income and property taxes before Dec. 31 -- but it  will benefit fewer people in 2018. That's because the new tax law limited this popular deduction to just $10,000. So prepaying any taxes over this limit will yield no benefits.

Charitable contributions

Those who do itemize deductions will still see tax savings from their charitable contributions because the deduction for donations was preserved, but with a few changes. The adjusted gross income limit on cash donations to qualified charities was expanded from 50 percent to 60 percent of the donation, so more of larger donations will be deductible. But gifts to colleges in exchange for choice seating rights at athletic events are now limited to exclude the value of the ticket's price.

No more phaseout of deductions

Upper-income Americans can also say good riddance to a hidden tax: The phaseout of itemized deductions went away under the new tax law. Anyone who was previously affected by this loss of a portion of deductions will now get the full tax benefit from all claimed deductions.

Medical expenses

Taxpayers who expect a considerable amount of out-of-pocket medical expenses get a valuable tax-planning opportunity in 2018, and they should pay as much of these expenses as possible during 2018. That's because taxpayers who itemize deductions will be able to deduct qualifying medical expenses that exceed just 7.5 percent of their adjusted gross income for 2018 tax returns. For 2019 and thereafter, that threshold will return to 10 percent and must exceed that to be claimed.

The alternative minimum tax

Fewer taxpayers will be snared by the dreaded alternative minimum tax (AMT). This levy affects mostly middle- and higher-income taxpayers, most of whom reside in states with high income taxes and high property taxes, such as New York, New Jersey, Massachusetts and California. While the new law retains this parallel tax regime that results in additional tax, it increases the amount of income exempt from the AMT to $109,000 for joint filers (up from $84,500) and $70,300 for singles (from $54,300).

 Another benefit here is that the phaseout of these exemptions begin at much higher income levels -- $1 million for joint filers and $500,000 for singles. These changes can offset some of the tax benefit lost due to the reduction in state and local tax deductions.

For small businesses and the self-employed

Finally, small-business owners and the self-employed will continue to gain tax savings from purchasing business-related property bought in 2018. This deduction was increased from $510,000 to $1 million, for qualified Section 179 property. Small-business owners can take an instant deduction totaling up to $1 million for the cost of business property such as office equipment, computers, software, office furniture, and more against their net income. 

This is a use-it-or-lose-it deduction, and any unused amount can't be carried forward to future years.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.