A few important takeaways from the new tax bill signed into law include:
- With the increase in the standard deduction ($12,000 for individuals and $24,000 for married filing joint), the limitation on the deduction for real estate and state income taxes ($10,000 per year), and the elimination of certain miscellaneous itemized deductions, fewer people will itemize, and instead choose to take the standard deduction.
- Individuals with little or no mortgage interest will most likely take the standard deduction unless they have substantial charitable contributions or medical expenses.
- Going forward, if individuals don’t generally itemize and they wish to maximize the deduction for charitable contributions, it may make sense to bundle several years of contributions into one year or fund a donor-advised fund.
- If you are over age 70 ½, it becomes even more beneficial to make charitable contributions directly to your charity from your IRA. These contributions, which are limited to $100,000 per year, are not reflected in your income and also satisfy the required minimum distribution (RMD) requirement.
- You can now distribute up to $10,000 per year from a 529 education plan for K-12 expenses. This should be considered in your long-term education plan, if applicable. In addition, this could be another way for grandparents to help save and pay for their grandchildren’s education.
- (Applicable to Washington) Though the Federal Estate Tax exemption has been doubled, it is still important to remember that Washington State’s estate tax has an exemption of $2,193,000 (2018) per person. Even if you are under the federal exemption, estate planning is still important if you are in the range of the Washington State estate tax.
Working with a tax professional or financial advisor can help you work through many of these new details. If you want to invest in a more tax-efficient manner or build your long-term financial plan, let’s connect.