As the end of the year approaches, it’s time to get your tax affairs in order.
Many of the changes brought by the Tax Cuts and Jobs Act passed by Congress and signed by President Donald Trump last December will now apply, including changes to the standard deduction.
Although the changes were initially promoted as simplifying the tax code, that does not appear to have happened.
“The world is just a lot more complex than it was before tax reform was passed and unfortunately there’s not a lot of clarity so it’s going to be some time before we really know the full impact of tax reform,” said Jesica Speer, private wealth services principal at accountants Grant Thornton LLP.
One major change is that the standard deduction has been increased to $12,000 for individuals and $24,000 for married couples. That means that many people will no longer need or benefit from itemizing their deductions.
“I would say that, generally speaking, you’re going to see a lot more taxpayers who are simply taking the standard deduction over the itemized deductions,” said Speer.
Sean Sebold, president of Sebold Capital Management, which provides wealth management and financial planning services, notes that changes to the standard deduction could have a significant impact on charitable giving.
“Charitable deductions are going through a massive, massive change because of the change in the tax law,” said Sebold.
For many people who take the standard deduction, there may be no tax incentive for them to donate to charity.
“Most people who itemize their taxes could have a property tax bill of say $12,000 to $14,000 plus their mortgage interest,” said Sebold. “But if as a couple they get $24,000 as a standard deduction and they are capped out at Illinois at $10,000 they would have to have an additional $14,000 in deductions in order to benefit from filing an itemized return.”
No itemized deductions mean no itemized deductions for charity and that, said Sebold, is going to have a “direct impact” on charitable donations.
Speer and Sebold join host Eddie Arruza to discuss end-of-year tax planning.