written by Jay Logal 

As tax season quickly approaches, taxpayers are searching for successful year-end tax strategies to set them up for success. The Tax Cuts and Jobs Act (TCJA), which was passed into law December of 2017, simplified the tax code for many individuals and is poised to have a large impact on 2018 returns.

The TCJA lowered individual income tax rates and eliminated miscellaneous itemized deductions for individuals. The law also adjusted the top income tax bracket rate and doubled the standard deduction.

By the numbers

Under previous tax laws, the standard deduction sat at $6,350 for single filers (and $12,700 for joint, $9,350 for heads of household). That threshold has nearly doubled to $12,000 for single filers ($24,000 for joint filers, and $18,000 for heads of household). Those whose itemized deductions fall below those benchmarks will be able to take the standard deduction, making the filing process easier for those taxpayers.

The top marginal income tax rate lowered from 39.6 percent to 37 percent. Small business owners will have greater opportunities for tax deductions this coming tax season thanks to the new 20 percent deduction, which allows them to deduct up to 20 percent of their net income depending on their tax bracket.

If you’re a consultant who travels frequently for work, you may find some unwelcome changes. For example, if your company is willing to reimburse you 30 cents on the dollar for your travel expenses and the standard mileage is 54 cents on the dollar, that spread—which is an unreimbursed itemized deduction and a large deduction for many people—is now no longer available as a deduction.

Developing a strategy

Whether you are taking the standard deduction or an itemized deduction, there are many ways to use the changes made in the TCJA to your advantage.

Cash flow management.
One of the best strategic practices you can exercise is managing your cash flow, and if you own a small business, your cash flow and deduction should work in tandem. For example, if your income is down this year, you may want to consider the standard deduction, knowing that you may have better footing for an itemized deduction the following year.

Shifting expenses.
If you are on the cusp of a deduction, see what expenses you may be able to push to the next year. If you have had a strong year, see if those who owe you money would be willing to delay their payment until January.

Philanthropic giving.
Those who are on the cusp of whether to itemize with a larger standard deduction should consider philanthropic giving. My colleague, Ray Moncrieffe, rightfully described that charitable contributions are one of the few buckets left for financial planning. Whether you choose to bundle charitable contributions every other year or combine your monetary contributions with physical donations, philanthropic giving is a smart avenue to consider in your tax strategy.

You can’t just live in a world of taxes—and you shouldn’t buy something simply because of your tax position—but you should develop a long-term tax strategy that benefits you. If you have any questions about the Tax Cuts and Job Act or want to develop a tax strategy of your own, please contact your client administrator.

Because we are committed to keeping you in-the-know, we established a four-part blog series exploring the impact of the Tax Cuts and Jobs Act of 2017 on company vehicles, meals and entertainment, the 20 percent deduction and charitable giving.

Jay Logal, CPA, is a manager at The Whitlock Company. He specializes in preparing and reviewing federal and state income tax returns for individuals, corporations and partnerships, and he expertly researches and reports on tax issues raised by clients and governmental agencies.