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Have you filed your taxes for 2018 yet? There are big changes after the Tax Cuts and Jobs Act was passed in late 2017. Higher standard deductions, state and local tax limitations, and lower tax brackets will affect taxpayers for six years until the new law sunsets December 31, 2025. 

With this provision, a notable change which increased the standard deduction to $24,000 for married filing jointly and $12,000 for single filers alleviates the chore of recording and reporting itemized expenses. In 2017, approximately 30% of taxpayers itemized their deductions. That number is expected to be fewer than 10% in 2018. 

State and local taxes (SALT), which includes property taxes, personal income tax, and sales tax, are capped at $10,000 annually per tax return. Interest paid on home equity lines of credit (HELOC), including interest paid on existing line of credit borrowings, will no longer be deductible unless loan proceeds are used to build, buy, or substantially improve the home that secures the loan. Miscellaneous itemized deductions such as tax prep fees are no longer deductible subject to the 2% floor. 

The new law keeps seven tax brackets for personal income but makes significant changes to the tax rates. The new tax rates and brackets work in unison and should result in lower tax bills for the majority of taxpayers. 

With change comes new opportunities. Bundling a number of years of charitable donations into a Donor Advised Fund (DAF) would potentially benefit taxpayers if they exceed the standard deduction. For those 70½ or older, consider donating part of your required minimum distribution (RMD) from your IRA directly to a charity of your choice and avoid taxation up to a maximum limit of $100,000 per year.  

As the new tax law sunsets in six years, it is important to meet with your advisor to discuss potential tax planning strategies around the new law. Read our latest Economic and Market Commentary for Market Returns Year-To-Date, Market Returns Longer Term Annualized, Economic Indicators, and an Appendix.


Source: Bloomberg, Eaton Vance, Tax Foundation

This is intended for informational purposes only and should not be construed as legal, investment or financial advice. Please consult your legal, investment and financial professionals regarding your specific circumstances. 

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