Tax Saving Tips Advisors Need To Know

By Curt Fowler

Last week, we looked at some tax planning opportunities that are available to business owners. This week, I want to cover some tips that can save non-business owners some tax dollars on their 2018 returns.

Charitable Deductions: Tax reform nearly doubled the standard deduction and capped the deduction for state, local and real estate taxes at $10,000 for married filing joint filers. These changes will limit the number of filers who should take itemized deductions over the standard deduction.

If you are a giver to charities, bunching your charitable contributions may allow you to itemize in high-giving years and take the standard deduction in lower-giving years.

You can bunch charitable contributions by giving to your charities every other year or every few years. You could also use a Donor Advised Fund. A DAF allows you to make your contribution in one year (and take the deduction in that year) while deferring the timing of the donations to the charity.

If you are over 70.5 years old, consider making your charitable contributions from your IRA by making a Qualified Charitable Distribution. A QCD gets the money to your charity of choice, excludes the distribution from taxable income and helps you meet your required minimum distributions.

Home Loan Interest: Tax reform drops the deductibility of mortgage interest from $1 million to $750,000 or less for mortgage debt incurred after Dec. 15, 2017.

Interest on home equity lines of credit remain deductible up to $100,000 but only if the loan proceeds are used to "buy, build or substantially improve" the home that secures the loan. Plan accordingly to maximize this deduction.

Tax Arbitrage: A very cool sounding term for taking advantage of lower tax rates by deferring or realizing income when tax rates are lower.

Traditional methods of tax arbitrage included deferring tax realization by postponing receipt of income through retirement savings and deferring Social Security and retirement plan distributions. You would only make these deferrals if you believed your income would be taxed at lower rates in the future -- like at your retirement.

Tax reform has added a new element to the tax arbitrage discussion. Tax reform temporarily lowered tax rates. The tax rates are scheduled to go back up 2026 tax year and beyond. Based on your situation, should you realize more income now at the lower rates before they go back up in 2026?

Retirement Planning: The temporarily lower rates created by tax reform also affects your retirement planning decisions. Based on your situation, is it better to invest in a Roth IRA and pay taxes now rather than deferring taxes using a traditional IRA? Should you consider converting a traditional IRA to a Roth and incurring the taxes on that conversion while rates are temporarily low?

Child Tax Credit: Tax reform eliminated personal exemptions but doubled the Child Tax Credit to $2,000 for each qualifying child younger than the age of 17.

Planning tip: Social Security numbers must be issued prior to the due date of the tax return including extensions. Make sure you have Social Security numbers on hand for every child you plan to claim the credit for.

529 College Savings Plans Expanded: 529 plans have been a great way to prepare for college costs while saving on state taxes.

Distributions from 529 plans can now cover up to $10,000 of educational expenses for designated beneficiaries at public, private or religious elementary or secondary schools. There was almost language in the law to allow distributions to cover homeschooling costs, but that got axed before the law went final.

Disclaimer: There are a ton of details and nuances to all this stuff, so please do not consider this column legal or tax advice. Talk to a qualified tax advisor to find out which of these planning opportunities make sense for you and your family.

Curt Fowler is president of Fowler & Company and director at Fowler, Holley, Rambo & Stalvey. He is dedicated to helping leaders create and achieve a compelling vision for their organizations.

Curt is a syndicated business writer, keynote speaker and business advisor. He has an MBA in strategy and entrepreneurship from the Kellogg School, is a CPA, and a pretty good guy as defined by his wife and four children.

Jason Smith is a reporter at The Valdosta Daily Times. He can be contacted at 229-244-3400 ext.1257.

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