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How Will the Tax Act Affect You?
Concerned about how the new tax laws will affect your 2018 tax bill? You aren't the only one.
The Tax Cuts and Jobs Act includes a number of tax changes that could impact you. According to Alverno alumna and financial advisor Sherry Plevak '94, the most important act to take right now is to review your financial situation and determine how the new law will affect your tax burden. She says now is the time to do a mid-year check in with your tax preparer.
The tax changes will affect each household differently, from working investors to retirees. For example, people with mortgages on second homes and those who have a large Required Minimum Distribution (RMD) from an IRA may be affected.
Because of these changes, some of the tax planning strategies you have used in the past may need re-evaluation. If you are philanthropically minded, one option for people 70½ and older may be to gift all or part of their annual RMD to charity. The charity doesn't pay a tax, and the donor doesn't pay taxes on the portion of the distribution that is gifted.
For example, if your RMD is $10,000, and you make a direct gift of $5,000 to Alverno, you only pay taxes on the $5,000 that you keep, thus reducing your tax burden. Of course, this only applies if you don't need the entire RMD for living expenses because you have other financial resources such as a pension. Learn more about IRA charitable gifts.
Plus, it's easy. Simply contact your financial advisor or IRA or 401(k) plan administrator and ask for your RMD or a portion of it to be directly sent to the charity of your choice. You will want to track your charitable gifts for tax purposes.
Two additional strategies may reduce your tax burden. By setting up a charitable gift annuity or charitable remainder unitrust , you can make a gift to charity that will also provide you with annual income, a charitable income tax deduction and potentially favorable capital gains treatment. Your specific benefits will depend on your personal circumstances, including whether you itemize or take the standard deduction.
You can also make a gift of an asset, such as stock or property, that has significantly appreciated. This strategy allows you to generate a charitable tax deduction and potentially save on capital gains taxes. Itemizers and non-itemizers will see tax benefits with this strategy.
The most important thing is to review things now so you can make the best financial decisions for your situation before the end of the year.