With the end of the year fast approaching, there are some items that you may want to discuss with your accountant before the year ends. Here’s our round-up of the most important tax bill updates that will impact anesthesiologist taxes in their 2018 filing.
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Because of the new tax law changes taking place in 2018, you are going to want to be sure you have withheld enough taxes. While the tax brackets have been significantly expanded, and the tax rates have gone down, there is still a high possibility you are not withholding enough.
The new tax law has many sweeping changes that eliminate the advantage of itemizing deductions for many people. Large items changing are the limitation on the deduction for state and local income and property taxes and the elimination of miscellaneous itemized deductions. We suggest you talk with your CPA and be sure your withholding to date is where it needs to be. If not, there is still time to catch up. You don’t want to find out when your taxes are due that you owe a large amount, which, in turn, could force you to pay underpayment penalties.
Don’t wait to find out that you haven’t withheld enough taxes and then be forced to pay underpayment penalties.
Even though state and local income and property taxes are limited to a $10,000 deduction for federal itemized deductions, be sure you are still taking advantage of your state deduction. Many states still allow a deduction for property taxes paid during the year, so do not put off the payment simply because of the federal limits. Pay enough of your property taxes to take advantage of your state deduction.
Make sure you are paying enough of your property taxes to take advantage of your state deduction.
Remember that the mortgage interest deduction is now limited to $750k of acquisition indebtedness or less. If a home was purchased before December 15, 2017, the old limit of $1 million is still in place. If you bought a home after December 15, 2017, and the loan was for more than $750k, your mortgage interest deduction will be limited. Also, effective this year, there is no longer a deduction for home equity loans and lines of credit unless the debt was used to buy, build or substantially improve the taxpayer’s home that secures the loan.
Remember: Mortgage deductions are now limited and home equity loan deductions have been eliminated.
Charitable Contribution Deductions
Because of the limited use of itemized deductions and the fact that the standard deduction has been increased, many people are worried they will not get a deduction for charitable contributions. There are a couple of ways to still take advantage of these deductions.
First, an individual can “bunch” their contributions that they typically would give over a few years into one year. For example, if you typically donate $10k to your church each year, you may want to save the contributions up each year and then give three to four years’ worth in one year. Or, if an individual has a preference to give a certain amount each year to various charities, he can set up a donor-advised fund (such as Fidelity Charitable Fund) and give this fund the bunched contribution. You get the deduction on your taxes the year you give to the fund, but you get to control to whom and when the funds are contributed. You may want to spread it out over several organizations over various years.
Bunch charitable donations or set up a donor-advised fund to take advantage of charitable donation deductions.
To many people, year-end tax planning usually involves the discussion of funding an IRA. Because the tax rates are lower than they have been in a while, you might want to consider converting some of your traditional IRAs into Roth IRAs. This would make sense if you expect to remain in the same or higher tax brackets in the future or if you anticipate higher tax rates going forward.
Talk to your CPA to see if this will make sense for you. Or, maybe you annually fund a non-deductible IRA and subsequently convert that into a Roth IRA each year. For both of these scenarios, you will need to remember that the new tax law takes away the ability to undo these conversions. In the past, taxpayers might have second thoughts and want to re-characterize the conversion back to the original status. This is not allowed anymore.
Consider your IRA vs. Roth IRA funding opportunities.
Taxes Are Complicated, But We Can Help
As with any tax planning, there is no single “right”/“wrong” answer. There are other considerations to take into account when looking at particular items. Be sure to always let your CPA know your “entire” tax situation, as any planning advice should be given knowing all the factors involved. Or, if you need additional help with your taxes as an anesthesiologist, feel free to contact us.