The changes to tax law that took effect this year, including the near doubling of the standard deduction, mean you may benefit from multiyear tax planning.
To reduce your tax bill, tax professionals say that individuals may want to change the pace of their charitable contributions, while business owners may want to spread out deductions over several years.
This is becoming more important with the changes to the standard deduction. As you may know, the standard deduction is now $12,000 for single filers and $24,000 for married couples filing jointly.
In some cases, this means that it may no longer be worthwhile to itemize deductions for things like mortgage interest, state and local taxes, and donations to charities. In other cases, by timing charitable donations and spreading them out over several years you can reduce your tax bill.
Longer-term tax planning also is important for business owners whose companies are proprietorships, partnerships or S corporations. The new tax law sets a 20-percent deduction for these business owners, provided they meet certain income limits.
But even if you’re a business owner whose income exceeds those limits, your tax preparer may be able to use multiyear planning to get your income below the thresholds. How? You could invest in new equipment and take depreciation over several years; make charitable donations; and save more in retirement plans each year.
The result can be a lower tax bill over several years.
We’re not tax experts, so we encourage you to contact your tax professional for advice and then keep us in the loop so that we have a complete understanding of your entire financial picture.