Tax Reform in 2019: Top 5 Things to Consider in the New Year

There's still time to take actions that can impact your 2018 taxes—and help you prepare for the 2019 tax season, too.

The Tax Cuts and Jobs Act (TCJA), signed into law in December 2017, is the most significant tax code overhaul in more than 30 years. Believe it or not, as of late 2018, some of the details of the law were still being ironed out—which means preparing for the impacts of tax reform in 2019, as we enter tax season, could be especially challenging.

“If you haven’t talked to your tax advisor by now, you need to,” says Alex Quest, a Senior Wealth Planner at Wells Fargo Private Bank. “You’ll want to look at your assets and reassess strategies for your business, estate planning and gifting, investments—everything.”

Here, Quest shares five tax reform tips to consider as we head into the new year.

1. Be prepared to itemize (or not)

The TCJA increased the standard deduction ($12,000 for single filers and $24,000 for married filers) and eliminated or put limits on traditional deductions, including the state and local tax (SALT), which should make tax reporting easier for most taxpayers. For higher-income taxpayers, however, TCJA likely hasn’t simplified tax reporting, or may have even made it more complex. Even if you take the standard federal deduction, you may benefit by itemizing your state return. Your tax advisor can guide you on the right choice to make here.

“If you haven’t talked to your tax advisor by now, you need to.” —Alex Quest, Senior Wealth Planner, Wells Fargo Private Bank

2. Consider last-minute options to help lower your 2018 taxes

You may be able to reduce your 2018 obligation in 2019 by:

  • Funding IRAs and other tax-advantaged accounts for 2018 until April 15, 2019, to increase the money you invest and reduce your taxable income.
  • Setting up a Simplified Employee Pension IRA if you’re self-employed or own a small business. You have until March 15 (or September 15 if you file in October) to start this retirement-planning vehicle, which may allow you to deduct retirement contributions from federal taxable income.

3. Make your last estimated tax payment count

If you pay estimated taxes, the last payment for 2018 is due January 15. Your tax liability under TCJA may have changed significantly, so to avoid potential underpayment penalties, you need to withhold or pay up front the smaller of:

  • 90 percent of your actual tax obligation
  • 110 percent of last year’s taxes—up from 100 percent previously—if your adjusted gross income as a couple filing jointly is $150,000 or higher

4. Keep an eye on federal and state tax developments

In late 2018, the federal 1040 tax form was still in draft form, and other forms, including some new key schedules, weren’t yet available to the public. What’s more, many states had yet to determine how they would comply with the new law. The new $10,000 cap on the SALT drove some states to develop legal workarounds to relieve additional tax burdens on their residents and help retain revenues—which the IRS was moving to block. There were also lawsuits challenging the cap’s constitutionality. Many other issues surrounding the new tax law will remain unresolved until well after filing season has ended.

“The dust will not have settled until after the April 15 deadline,” Quest says. His advice: “Consider filing for an automatic extension to allow more time for the IRS to provide additional guidance or legal challenges to resolve. If you take a position on your tax return that the IRS may disagree with, you may want to pay your taxes under the assumption that these workarounds and challenges won’t hold up, then amend your return if things do go in your favor.”

5. Learn from 2018 for your 2019 taxes

The takeaways that you uncover as your 2018 taxes are completed should impact how you plan for next year—starting immediately. “The bottom line,” Quest says, “is to know what your tax picture looks like and take steps to offset your tax liability throughout the year, as opposed to waiting until year end.”

Mike Woelflein is a business and investment writer based in Yarmouth, Maine. Image by iStock

What can Wells Fargo do for you?

Talk to us about tax-efficient strategies to consider.

Wells Fargo Wealth Planning Center, part of Wells Fargo Private Bank, provides wealth and financial planning services through Wells Fargo Bank, N.A., and its various affiliates and subsidiaries.

Wells Fargo & Company and its affiliates do not provide legal advice. Wells Fargo Advisors does not provide tax or legal advice. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.

This information is provided for educational and illustrative purposes only.

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