In the wake of the passage of the Tax Cuts and Jobs Act, many individuals are beginning to analyze how their finances will be impacted under the new legislation for the coming filing season.
Continue Reading Below
One expert told FOX Business that everybody has the opportunity to benefit from the reforms, it will just require some strategizing.
“No more taxes as usual: You can’t just do the same thing and let the government’s changes affect you,” Elijah Kovar, co-founder of Great Waters Financial, said. “The wealthy, no matter what changes happen, they find out how [they can] use it to their advantage. It’s time the middle class does the same thing.”
One of the main pieces of advice Kovar is giving his clients is that it’s no longer appropriate to develop tax plans on a year-to-year basis. Instead, strategies should take into account multiple years’ worth of financials.
The new law nearly doubles the standard deduction, to $12,000 for single filers and $24,000 for married couples filing jointly. That means, it makes sense for more people to take the standard deduction rather than itemize.
However, Kovar recommends some taxpayers should consider doing both. One way to accomplish that is by bunching deductions.
“What if we can take the standard deduction in one year, but then in 2019 we pile a bunch of 2018’s expenses and pull in some of 2020’s expenses, and come up with $30,000 of itemized deductions?” Kovar explained.
By timing your payments strategically – paying your mortgage on Jan. 1 instead of Dec. 31 for example – you can maximize the amount of deductions in some years, while taking the standard deduction to offset the other years.
Some of the deductions that could work for a bunching strategy include medical payments, charitable contributions and mortgage payments.
The Republican tax law imposed the biggest changes on the U.S. tax code in more than three decades, which is why Kovar said individuals should not expect the strategies they previously used to yield maximum benefits.
Some of the major changes include imposing a $10,000 cap on state, local and property tax deductions, eliminating the Affordable Care Act’s individual mandate and increasing the exclusion amounts for the Alternative Minimum Tax. There are also a number of deductions that individuals will no longer be able to claim.
This story has been updated.