Money & Policy

What to Talk to Your Tax Pro About Before 2019

The topics that could help lower your taxes this year and next

Outside of the annual spring ritual of filing tax returns, most Americans are not regularly thinking about their taxes. However, this year, there are several compelling reasons why taxpayers should be thinking about this subject ahead of peak season. Waiting until spring 2019 may mean the difference between getting all the tax benefits to which you are entitled or losing out due to lack of time for thoughtful analysis and planning.

This tax season is sure to pose confusion. The most tax code changes in decades were enacted at the end of 2017 in the Tax Cuts & Jobs Act and they will be in effect this upcoming filing season. From alterations to many of the common tax deductions people have claimed in the past to potentially dramatic changes in estimated refunds, these changes are not only extensive but also complicated.

An estimated additional 3 million Americans will owe the government additional taxes because of underpayment of estimated taxes and withholding taxes throughout the year, and many might be blindsided by a tax penalty come April.

Here are a few things you might want to talk with your tax professional about before January:

The 2017 tax law in general: Taxpayers will want to ask their advisers about the impact  of the law on them. The sooner you talk to your tax pro — or find one — the better.

Your investments: Many investors will have tax losses in their portfolio for 2018 due to the rocky year for the stock and bond markets. A tax adviser can help you review and adjust your portfolio to take advantage of what’s referred to as tax loss harvesting (or minimizing taxes on investments).

For example, you might offset capital gains and losses to end up with a net capital loss of $3,000 in 2018 (the maximum that can be offset against more highly taxed ordinary income in the current year). Any additional net capital losses could be being carried forward to 2019.

Your estate plan: The Tax Cuts & Jobs Act increased the exclusion amounts for estate and gift tax, meaning estate plans can now leave much larger sums to heirs without incurring large federal estate and gift taxes. Adding to the complexity of estate planning, the new higher exclusion amounts are only temporary, expiring after 2025.

Paying for your child’s or grandchild’s education: Previously, 529 plans were focused on saving for college; but the 2017 tax law allows 529 plan distributions for elementary and secondary education tuition costs, too. Advice on the intricacies of how much money to contribute under this new provision should be reviewed before setting money aside.

A small business you own: There is now a significant (20 percent), but complicated, deduction for owners of what are called “pass-through businesses” —  sole proprietorships, partnerships, and S corporations. This change is complicated because it requires information from both the owner and the pass-through business to determine the amount of the deduction. While it is one of the most complicated provisions in the 2017 tax law, it could also be one of the most beneficial to those who qualify.

Waiting until the last minute to understand how the tax changes will play into your planning and savings will be cause for chaos come tax season in early 2019 — the busiest time of year for tax advisers. Now is the time to sit down with yours to get questions answered in a less hectic environment.

By Mark Luscombe
Mark Luscombe, a CPA and attorney, is the principal federal tax analyst for the tax and accounting firm Wolters Kluwer. He co-authors a monthly tax strategies column for Accounting Today and authors a monthly tax trends column for TAXES magazine.

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