DocWife’s note: This is my first guest (not sponsored) post. This means all opinions in this article belong to the authors and that no payment has been exchanged.

Have you been keeping up with the news? The Senate just approved the most drastic changes to US tax code in 30 years. Listen as Rachel Rasmussen, MBA, CFA and Dave Neinaber, CPA, CFP® of Foster & Motley walk you through what you need to know. Act quickly because in the next few days, you can act on some of these changes before December 31, 2017.

Rachel Rasmussen is a fee-only financial advisor and married to a physician. You can contact her through her company website and in the private Physician Finance Facebook Community.


By: Rachel Rasmussen, MBA, CFA and Dave Nienaber, CPA, CFP®

It appears we will have new tax law effective January 1, 2018.  That means you have the rest of this year to consider some key tax strategies to reduce your tax bill.  Act QUICKLY!

Also, there are some key changes in 2018 you should be aware of.

The bottom line is: this bill generally lowers tax rates but reduces or eliminates some deductions at the same time.  There will be some who pay more and some who pay less in taxes next year.

Keep in mind, many of the changes impacting individuals have sunset dates, meaning they expire (many expire at the end of 2025). This bill does not create simplification. If anything, it will create additional uncertainty that will continue to make personalized tax planning very important.

Be smart about your tax planning, and you could save $$$ on your bill come April! 

The two most common strategies to consider prior to year-end are:

  1. If you typically make estimated quarterly tax payments:

Pay any remaining state and local estimated tax payments before December 31st. Don’t overdo it – the tax bill has a provision that prevents the pre-payment of 2018 taxes.

  1. If you are a home owner:

Prepay your 2018 property taxes. For example, in Ohio you can pay your full 2018 property tax bill before December 31st. Unfortunately, in many states this will not work. We have talked to counties in KY, SC, FL, and CO that will not accept property tax pre-payments. Any check they receive will be returned. Check with your county to see if they will allow prepayments.

These strategies may not make sense for everyone. For example, high-income earners to be in Alternative Minimum Tax (AMT) in 2017, may not receive a deduction for taxes regardless of when the tax payments are made.

What happens in 2018?

The single biggest change in the tax bill is the increased standard deduction, which goes from $12,700 for Married Filing Joint, to $24,000 ($12,000 for Singles).

The standard deduction basically reduces the amount of income that is used to calculate how much tax you owe.  For example: Let’s say you and your spouse file jointly and make adjusted gross income (AGI) of $100,000.  You subtract the standard deduction of $24,000 and only pay income tax based on $76,000 of income!

Larger deduction = less tax.

Another option is to itemize, because all the other types of deductions you can take, such as charitable giving, add up to more than the standard deduction.  With the new bill, many tax filers may not even itemize in future years. This could simplify your filing, and create some other tax savings strategies, such as “deduction bunching” and Qualified Charitable Distributions “QCD’s” discussed more below.

Another notable change is the increased estate tax exemption to $11 million per person. Back in 2011, this was increased to $5 million per person, and the concept of portability was added, allowing a married couple to combine their exemptions without careful estate planning. The new law means a married couple can shield $22 million from estate tax, making this a non-issue for many people. This sunsets in 2025 and will revert to the current exemption amount (adjusted for inflation) in 2026.

Here are some of the nitty gritty details we think will impact the largest number of our clients:

  1. You can’t deduct all your state and local taxes anymore. State and local income taxes plus property taxes will have a combined deduction limit of $10,000 (not indexed for inflation).
  2. 529 plan withdrawals can be used for private elementary and secondary school expenses, up to $10,000 per student per year.
  3. Mortgage interest deduction will be capped at $750,000 on new mortgages, down from $1 million. This will impact homes purchased after December 15, 2017. Existing mortgages and future refinancing of these mortgages will retain the old rules. So, if you’re buying a big, expensive house, this may affect you.
  4. You can no longer deduct home equity interest. Previously you could deduct up to $100,000 if you met certain criteria.
  5. Tax preparation and investment advisory fees are no longer deductible. Previously they were deductible after the expense exceeded 2% of adjusted gross income if you were not in AMT.
  6. As noted above, the standard deduction nearly doubles to $24,000 for married couples and $12,000 for singles. Personal exemptions are eliminated.
  7. The Child Tax Credit will be available to more families. The phaseout for married couples previously began at $110,000 but is increasing to $400,000 next year.
  8. The Alternative Minimum Tax (AMT) still exists, but will impact fewer people. Higher AMT exemptions combined with a cap on state and local income tax deductions will likely limit the folks nabbed by the AMT to a few unlucky filers.
  9. Conversions to Roth IRAs will need to be carefully considered, because you will lose the chance to “unconvert” after the fact. The recharacterization rules will no longer apply to Roth conversions in 2018 and forward. No changing your mind!

What strategies do we anticipate using in the future?

  • The higher standard deduction will incentivize some taxpayers to stagger deductions into every other year. For example, you can make two years of charitable contributions in a single year, followed by none the next year. We expect the use of donor advised funds to continue to increase.  Maybe we will write an article about these in the future!
  • The use of Qualified Charitable Distributions (QCD’s) for donations to charity from IRA’s for people over 70.5 should become more popular. They are a slam dunk if you don’t itemize – and fewer people will be itemizing.
  • The appeal of states with no income tax will become even greater.

Obviously, there are numerous details in the tax bill beyond the scope of this article. So, tax planning will continue to be an important part of a comprehensive financial strategy.

We encourage you to reach out to your financial planner or your tax professional to better understand what the tax bill means for you!

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DocWife