Wealth Management & Financial Planning

Wealth Management & Financial Planning

Tax Code Changes Present New Considerations


What a difference a week makes! The end of the year always presents tax planning considerations. However, this year’s last-minute tax legislation presents several new questions.

In last week’s column, I discussed the Roth re-characterization option. This option allowed individuals to convert Roth IRA monies into a traditional IRA and then subsequently change their mind.  However, newly proposed House and Senate bills remove the re-characterization option. Under the proposed legislation, even Roth conversions made in 2017 must be re-converted or kept after December 31st.  Although unanticipated, it now appears that Roth re-characterizations will definitively be eliminated effective January 2018.

Other significant changes are also afoot, including a huge change in the standard deduction.

Each year, taxpayers may choose to deduct a standard amount from their taxable income. The current deduction is $6,350 for single filers and $12,700 for married filers. If passed, the new legislation will increase single filers’ deductions to $12,000. The standard deduction for married couples filing jointly will jump to $24,000.

Tax payers may choose to forego the standard deduction and itemize their taxes. Individuals and couples who itemize their taxes add up allowable deductions and subtract the deductions from their income. The big three deductions tend to be state and local taxes, mortgage interest and charitable contributions. Occasionally, large deductions for medical expenditures are permitted. However, medical deductions are limited to 10% of a taxpayer’s adjusted gross income (AGI).

Here is one example of why the proposed tax changes demand consideration. A married couple plans to itemize $18,000 in deductions. Under the current tax code, the couple filing jointly could claim a $12,700 standard deduction. Under the newly proposed legislation, the couple gains an extra $5,300 in deductions.

IRS data indicates about one-quarter of U.S. taxpayers currently itemize their deductions. Under the proposed change, the White House Chief Economist has projected one-ninth of tax filers would take the standard deduction. Keep in mind, as taxpayers’ earnings increase, they are more likely to itemize.

A couple filing jointly whose itemized deductions exceed the standard deduction of $12,700, should pause to consider if their itemized deductions will exceed the proposed $24,000 standard deduction. Realizing that they may not be itemizing deductions in the future, tax filers may choose to pay forward 2018 charitable donations this year. This approach could be very beneficial from a tax perspective.

It is difficult if not impossible to pay mortgage interest ahead of time. Nothing prevents taxpayers from making their 2018 charitable gifts before December 31st. Cash permitting, this approach could optimize opportunities this year and into the future.

As with all financial considerations, please consult your personal tax planner and financial advisor to identify the best strategy for your situation. The tax code has not changed so dramatically since 1986. Please don’t miss a window of opportunity to make significant financial decisions. The window closes at the end of the calendar year.


Tax advice provided by CPA’s affiliated with Financial Enhancement Group, LLC.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer.

Want to sign up to receive the Market Carver?

Schedule a "Next Steps" Meeting

If you request a “Next Steps” meeting, we will discuss with you things you should do today, things to consider tomorrow, and if we choose to partner together… a written plan on what Financial Enhancement Group can do to help meet your goals.

Receive Our Free weekly Market Update Video

The FEG team regularly shares pertinent financial information to help educate our friends and families on what’s happening in the market, as well as information on financial planning. Fill out the form below to be added to our list for distribution.

Access all of our checklists!