Short-term capital gains are taxed at up to 37%. Your long-term (investments held for longer than one year) capital gains rate can be as much as 20% lower than your ordinary tax rate. If you have already realized large capital gains during the year and want to reduce your tax liability, consider harvesting capital losses in your portfolio before year-end.
Prior law allowed you to take a deduction for $4,050 for yourself, your spouse, and for each of your dependents. In 2018 and until 2026, this deduction no longer exists.
Prior law allowed you to deduct the state and local income taxes you paid, as well as real estate taxes on your home. The new law limits the deduction of these items to $10,000 per year. This limit is in place until 2026.
Fees you paid your accountant, employee business deductions, investment advisor fees, union dues, and other expenses were sometimes deductible as a miscellaneous itemized deduction. The new law completely eliminates this deduction until 2026.
Individuals can now deduct cash charity up to 60% of their income. This applies to contributions made to a public charity. The prior limit was 50%. However, the limit generally remains at 50% of income even for your cash contributions if you also make donations of property, such as appreciated stock.
You benefit from itemizing deductions only if they are greater than your standard deduction. With the standard deduction at $24,000 for joint filers (see below for other amounts), if you have itemized deductions less than that, you take the standard deduction. If you take the standard deduction, then your itemized deductions that year are wasted. Therefore, you are better off paying or prepaying every other year deductible items like taxes, charity, and medical in one year in order to get a large number in excess of the standard deduction. In the next year, you take the standard deduction. A donor advised fund may be a useful means of bunching charitable donations and then having the fund make distributions to the charities yearly.
An individual who does not itemize their deductions takes the Standard Deduction. The Standard Deduction has been increased to $24,000 for married filers, $12,000 for single, and $18,000 for head of household. The prior amounts were $12,700, $6,350, and $9,350 respectively.
Everyone gets to deduct the greater of their Standard Deduction or their Itemized Deductions. Significantly increasing the Standard Deduction like this will result in many people no longer taking itemized deductions.
The tax rates applied to individuals have been decreased to between 10% – 37%. In addition, the highest tax rate now applies to income over $500,000 (single filers) and $600,000 (married filing joint). Previously, the highest rate of 39.6% applied on income over $418,400 (single) and $470,700 (married filing joint).