The Trump tax-law change taking effect for your 2018 income taxes will double the old standard deduction. (Filing single will go from $5,650 to $12,000, Filing Jointly will go from $11,300 to $24,000). You can either itemize your deductions on Schedule-A or use the standard deduction, whichever is higher to reduce your taxes. Previously, 30% of filers benefited from using the higher deductions offered by Schedule-A. Most of those filers will now find that the standard deduction is larger and forego using Schedule-A in the future. This means that all of the things people used to do to increase their Schedule A deductions may not reduce their taxes anymore.
For example, just to increase deductions, many people would: make charitable contributions, get a larger mortgage and home equity line of credit for the interest, make purchases to get un-reimbursed employee expense deduction, and more. If you no longer benefit from Schedule-A, then none of these activities will be a financial benefit.
Some Implications include:
- Your mortgage and home equity line of credit interest benefit may be gone, so there is more incentive to extinguish these debts.
- Instead of making small annual donations and getting no financial benefit, hold them back to stack all of them into a single year, every few years – in order to breach the new Schedule-A threshold. For example, you may be able to stack: charitable donations, expensive medical or dental tests and procedures, sales tax on a new car or large purchases, investment information, etc.
- Reduce or eliminate your un-reimbursed employee expenses.
- Determine if your state’s property and income taxes are so high that you will be over the $10,000 cap for deductibility; so your income taxes may go up.
Many charities fear that donations will decrease since there is no longer a financial incentive for many people, but if you have assets to donate (like stocks or property), you can still use a donor-advised fund. However, too many people are doing this ($23 billion in 2016 alone), so Washington may shut down this mechanism.
In your tax planning, be aware that the 2018 Schedule-A may prompt you to make changes and it is best to do what you can to adjust before year end.