Don’t Forget To Do Your 2018 Retirement Tax Planning

January 3, 2018 | By More

Being retired means being smart about our income. Retirement Tax Planning should be a big part of that. Managing our retirement income to pay the least amount of income tax means we can stretch our savings to go farther. I use a combination of taxable IRA income and non-taxable accounts to keep my tax rate as low as possible.

It all starts with knowing the new tax brackets and deductions. Here is what the TRUMP – GOP tax cut ended up with.

2018 Tax Brackets For Your 2018 Retirement Tax Planning-

Married couples filing jointly, starting Jan. 1, 2018 and ending in 2026, the income tax brackets are:

10 percent up to $19,050

12 percent on $19,051 to $77,400

22 percent on $77,401 to $165,000

24 percent on $165,001 to $315,000

32 percent on $315,001 to $400,000

35 percent on $400,001 to $600,000

37 percent above $600,000

Single individuals, starting Jan. 1, 2018 and ending in 2026, the income tax brackets are:

10 percent up to $9,525

12 percent from $9,526 to $38,700

22 percent on $38,701 to $82,500

24 percent on $82,501 to $157,500

32 percent on $157,501 to $200,000

35 percent on $200,001 to $500,000

37 percent above $500,000

Other Income Tax Changes to plan for-

Standard Deduction

This tax cut architects decided to increase the Standard Deduction. The new amount to be subtracted from your AGI –

Single Individuals

Goes from $6,350 to $12,000 for 2018

Married Couples

Goes from $12,700 to $24,000 for 2018

As promoted, they doubled the standard deduction but don’t get too excited when starting your 2018 retirement planning. At the same time they quietly did away with your Personal Exemption of $4,050 per person. So the overall tax cut benefit isn’t as HUGE as being sold.

For an individual- It’s not the new $12,000 – $6,350 = $5,560 increased overall deduction. Its that $5,560 – $4,050 (lost exemption) $1,600 that is your increase in deduction.

For a married couple- It’s not the new $24,000 – $12,700 = $11,300 increased overall deduction. Its that $11,300 – $8,100 (lost exemptions) = $3,200 that is your increase in deduction.

Basically they moved personal exemption amounts into the standard deduction with a slight bump to provide a little tax relief, but at the same time produces a larger move against the itemized deduction thresholds. That threshold is now higher than they were by way of magic tax cut deduction manipulation.

Child Tax Credit

Doubled to $2,000 per dependent child under age 17. It has a refundable portion of $1,400. This means families can lower their tax bill to zero and still get a refund for the remaining value.

Mortgage Interest

Homes purchased from 1/1/2018 – 12/31/2015 will have their deductible mortgage interest capped at $750,000 in loan value. But hello, the new tax plan also does away with home equity loan interest deductions. There is no grandfathered exception for home equity loans being deductible going forward.  For those who retired with a vacation or second snowbird home, that mortgage deduction is also gone.

State and Local Tax Deductions

Your State and Local Tax are now capped at a maximum deduction of $10,000. That includes home property taxes within this deduction grab bag.

 

These are the primary changes to use in your 2018 retirement tax planning. Remember, these personal tax changes will expire after 2025 if not renewed by our all-loving government leaders.

What else can I say. Good luck, enjoy the small tax cut to those that will find one, and to the folks in charge telling us this is the biggest tax cut ever, c’mon man, really? Thanks for the peanuts!

 

Note: This article originally appeared at Leisure Freak.

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Category: Personal Finance

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Leisure Freak is a site dedicated to those who are truly passionate about reaching financial independence and early retirement. Not just the traditional definition of retirement, but a new passion-driven retirement.

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