Year-End Tax Planning Strategies

With the House and the Senate both passing their own versions of tax reform, there is a reasonably high probability that the United States will see a dramatic shift in tax policy in 2018. While no one knows what will be included in the final bill, there is an equally high probability that next year’s tax rates will be marginally lower for most tax payers.

With that thought in mind, we break down our year-end tax planning strategies into three main categories:

    1. Acceleration of deductions into 2017
    2. Shifting of income to 2018
    3. Best Practices


Accelerating your deductions in 2017 could make sense for two reasons:
    • Tax brackets may be lower in 2018 than in 2017 (hence the deductions could become more valuable in 2017 than in 2018)
    • Itemized deductions may get phased out in 2018

Four ways to accelerate your deductions in 2017:​

    1. If you are not at risk of paying the AMT (the alternative minimum tax), consider paying your 2018 property tax bill in 2017.
    2. Consider moving up medical procedures into 2017 that have significant out-of-pocket expenses.
    3. If you are planning to make significant contributions to your church or a 501c(3) organization, consider making the gift in 2017 rather than 2018.
    4. If you are a small business owner, consider making your 2018 purchases this year. This could include new and used personal property such as equipment, computers, desks, chairs, etc. Just be sure that these items are purchased and put in service by the end of the year.

There is little risk to implementing these tax maneuvers, and there is additional upside to you, the tax payer if there are changes to the tax code.



If you are self-employed, one simple way to do this is to wait to bill your customers until after January 1st. Small business owners on a cash-basis can also prepay and deduct qualifying expenses up to 12 months in advance. This could include:

    • Lease payments on business vehicles
    • Rent payments on a commercial property lease
    • Insurance premiums

If you are not self-employed, you can do the same thing if you have the ability to move a year-end bonus into January.

    • 401K contributions – if you do not max out your 401K each year, consider making both 2017 and 2018 retirement contributions in 2017. While this may create a challenging cash-flow situation, it may be worth the effort as the deferral could become more valuable in 2017.
    • Distributions from retirement plans – 2017 could be the year to take the minimum required distribution from your IRA. Consider waiting to 2018 to take additional distributions.
    • Roth conversion: 2017 could end up being a bad year to do Roth conversions. Consider re-characterizing your Roth conversion if the underlying assets performed poorly or wait until 2018 to do the conversion.


    • Make sure you are contributing to your company 401k if your employer matches your contribution
    • If you are not self-employed, make sure you are using the right plans for additional savings, whether an IRA, a Roth IRA, a non-deductible, or some other deferral option, such as annuities, cash-value life insurance and tax-efficient investments
    • If you are self-employed, make sure you are maximizing your retirement savings opportunities using the optimal plan design; and don’t overlook the opportunities to defer up to $100,000 in a Defined Benefit/401(k) combo
    • Be methodical about gifting, and find tax-efficient methods of helping family members. This can include:
      1. Charitable gifting: Outright gifts to charities​Gifts to family: Annual exclusion usage, outright gifts, gifts to a trust for the benefit of a family member.
      2. Educational savings: Tax-efficient vehicles include 529 plans Coverdell savings accounts and education IRAs.

Don’t forget to review your portfolio gains and losses for tax-harvesting opportunities.

Why am I being selected for an audit?

According to the IRS’ most recent Data Book, the IRS audited nearly 1.4M tax returns in 2014, approximately 0.8 percent of all individual tax returns filed in calendar year 2014 and 1.3% of corporation income tax returns filed in that same year.

IRS examinations (otherwise known as audits!) are done to determine if income, expenses, and credits are being reported accurately. Of the exams that take place, the most common method is a correspondence audit (examination by mail), but the IRS also does field exams (face-to-face audits).


While there is no simple answer to that question, the IRS uses several different methods to select their audits: random selection and computer screening, and related exams.


Sometimes returns are selected based solely on a statistical formula. They will compare your tax return against “norms” for similar returns. The IRS develops these “norms” from audits of a random sample of returns.


The IRS may also select your return when it involves issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.


We would break down the audit triggers into two categories: Individual 1040 Triggers and Business Triggers.


    1. Not reporting all income
    2. Making more than $200,000 a year
    3. Claiming “Hobby” activities as a business activity
    4. Filing a schedule C or E with your tax return
    5. Excessive business deductions on your schedule C
    6. Large schedule C losses


    1. Unusually low salary of an S-Corp Officer
    2. Large meal and entertainment expenses
    3. Claiming 100% business use of a vehicle

We are also asked about the risk of filing an amended return. According to the IRS website: “Filing an amended return does not affect the selection process of the original return. However, amended returns also go through a screen process and the amended return may be selected for audit.”


    • Should your account be selected for audit, the IRS will notify you by mail, they never initiate an audit by telephone. They will provide you with a written request for the specific documents they want to see.
    • The law requires you to keep all records you used to prepare your tax return for at least three years; so be sure to keep all records for three years from the date the tax return was filed.
    • Generally, the IRS will not go back more than three years. The IRS tries to audit tax returns as soon as possible after they are filed. Accordingly most audits will be of returns filed within the last two years.
    • An audit can be concluded in three ways:
      1. NO CHANGE: an audit in which you have substantiated all of the items being reviewed and results in no changes.​
      2. AGREED: an audit where the IRS proposed changes and you understand and agree with the changes.
      3. DISAGREED: an audit where the IRS has proposed changes and you understand but disagree with the changes.

If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted. If you owe money, there are several payment options available. If you disagree with the audit findings you can request a conference with an IRS manager. The IRS also offers mediation or you can file an appeal if there is enough time remaining on the statute of limitations.​

What parents need to know about back-to-school expenses

August can be an expensive month for families with children heading back to school… and some of these expenses may serve you on your tax return. So we are going to spend five minutes summarizing a few of the expenses worth paying attention to.

Tax Deductions for School Fundraisers

If you make donations to your child’s public school, you may be able to deduct the donation amount from your taxable income as a charitable donation.

If you receive something in return for your donation, then the reasonable value of the property you receive must be subtracted before you take the deduction.

For example: you donate $250 to receive a sweatshirt that sells for $25. In this situation, you would subtract the $25 value of the sweatshirt and use the remaining $225 as a charitable deduction.

After-school activities and Child Care Credit

For a child under the age of 13, the cost of before or after school care may qualify for a tax credit. Your child must be attending the program so that you can work, look for work, or go to school. The program must also be considered “child care,” so hour-long tutoring sessions don’t qualify.

The American Opportunity Tax Credit for education expenses can reduce your tax bill by up to $2,500

American Opportunity Tax Credit

The American Opportunity Tax Credit can amount to $2,500 in tax credits per eligible student and is available for the first four years of post-secondary education. Eligible expenses include tuition, books and required supplies. Room and board, medical expenses and insurance do not qualify for the AOTC. Income limits apply and the credit requires a 1098-T.

Lifetime Learning Credit

The Lifetime Learning Credit can create up to $2,000 in tax credits for qualified education expenses. The credit is for 20% of the qualified education expenses (up to $10,000 in tuition and fees). There is no limit on the number of years this credit can be claimed and you may be able to deduct qualified education expenses paid for yourself, your spouse, or your dependents. The deduction phases out after certain income ranges.

Tuition and Fees Deduction

The tuition and fees deductions can reduce the amount of your taxable income by $4,000. This deduction is claimed as an adjustment to income, so you can claim this deduction even if you don’t itemize deductions on your Schedule A. This deduction may help you if you don’t qualify for the American Opportunity or Lifetime Learning credits.

The qualified expenses are for undergraduate, graduate or post graduate courses. There is no limit to the number of years the credit can be claimed and you may be able to deduct qualified education expenses paid for yourself, your spouse, or your dependent(s), but the deduction phases out after a certain income range. You must file jointly with your spouse to claim this credit.

What Expenses Are Deductible

The tax deductions that are available to the average taxpayer have shifted over the years. What was available a few years ago may not be available today and what is available today may shift in the coming years.

For taxpayers who itemize deductions, you can deduct the medical expenses you paid for yourself, your spouse or your dependents to the extent that they exceed 7.5% of your 2019 adjusted gross income (AGI).

For example – if you and your spouse’s combined income was $110,000 last year and you contributed $10,000 to your IRA, your AGI would be $100,000. You could deduct any medical expenses that exceed $7,500. But you could only deduct those medical expenses if you are itemizing (not taking the standard deduction). * Note- the threshold jumps from 7.5% to 10% in 2020.

One of the changes under the recent Tax Cuts and Jobs Act is that you can no longer deduct miscellaneous employee business expenses. This change has a more-significant impact on union members, public servants and sales professionals who are not fully reimbursed for their travel, cell phone or entertainment expenses.

For small business owners and independent contractors, your business expenses must be ordinary and necessary to be deductible. This means they must be common and accepted in your industry and they must be helpful and appropriate for your specific trade or business.

Here is a more in-depth summary of what you can and cannot deduct on your 2019 tax return:

Medical Expenses


    • Preventative Care, Treatment, Surgeries, Dental and Vision Care: You can also deduct visits to psychiatrists, psychologists, prescription medication, glasses, contacts and hearing aids.
    • Alcoholism Treatment: Amounts paid for inpatient treatment to a therapeutic alcohol addiction center are deductible. This includes meals and lodging provided by the center during treatment.
    • Fertility Enhancement: The cost of the following infertility treatment procedures are deductible:
      1. In vitro fertilization, including temporary storage of eggs or sperm.
      2. Surgery, including an operation to reverse prior surgery that prevented you from having children.
    • Guide Dog and Service Animals: The cost to purchase, train and maintain a guide dog or service animal to help a visually impaired, hearing disabled or physically disabled person are deductible. These expenses include food, grooming and veterinary care.
    • Stop Smoking Programs are deductible, but the cost of non-prescription drugs is not deductible.

Not Deductible

    • Any Reimbursed Medical Expenses that were paid by your employer or insurance company are not deductible.
    • Weight Loss Programs that focus on general health are not deductible. However, if the weight loss treatment is for a specific disease diagnosed by a doctor (obesity, heart disease, etc), the expense is deductible.
    • Nonprescription Drugs and Medicine (except for insulin) are not deductible: Only prescription drugs are deductible.
    • Health Club Dues: Any expenses paid to improve your general health that are not related to a medical condition are not deductible.
    • Cosmetic Surgery: Any surgery that does not meaningfully promote the proper function of the body, prevent or treat an illness or disease is not deductible. You can, however, deduct cosmetic surgery if it is necessary to improve a deformity arising from a congenital abnormality, personal injury or disfiguring disease.

Miscellaneous Deductions


    • Gambling Losses to the Extent of Gambling Winnings: Gambling losses can include wagers, or other expenses incurred in connection with the gambling activity; but they are limited to the extent of the gambling winnings. In other words – you cannot take a net gambling loss, but you can use your losses to wipe out any gambling winnings.
    • Casualty Losses: ”Generally, you may deduct casualty and theft losses relating to your home, household items, and vehicles on your federal income tax return if the loss is caused by a federally declared disaster declared by the President.” IRS Website
    • Theft Losses – The amount of your theft loss is generally the adjusted basis of your property because the fair market value of your property immediately after the theft is considered to be zero.
    • Losses from Ponzi-Type Investment Schemes: Deductible as theft losses from income-producing property.
    • Home Office: You can take a home office deduction if you are self-employed and you use part of your home regularly and exclusively for business purposes.
    • Club Dues: Club dues (as we state below) are not deductible. The following organizations, however, are not treated as clubs organized for business, pleasure, recreation or social purpose (unless one of the main purposes is for entertainment):
      • Boards of trade
      • Business leagues
      • Chambers of commerce
      • Civic or public service organizations
      • Professional organizations
      • Real estate boards
      • Trade associations

Not Deductible

    • Unreimbursed Employee Expenses are no longer Deductible under the new tax code, unless you are a performing artist or serve in the Armed Forces as a reservist.
    • Commuting Expenses: The cost of traveling from your home to your work is not deductible. There is an exception is for qualified performing artists and Armed Forces reservists. They can deduct the cost of hauling tools or instruments to and from work.
    • Fines and Penalties: Any amounts paid to settle a liability for a fine, a civil or criminal penalty or a parking tickets are not deductible.
    • Club Dues: Membership in any club organized for business, pleasure, recreation or social purpose is not deductible – this includes athletic, luncheon, sporting, airline, hotel and country clubs.
    • Campaign Expenses: This applies to a candidate for any office and includes qualification and registration fees and legal fees.
    • Lobbying Expenses and Political Contributions: According to the IRS: “You can’t deduct contributions made to a political candidate, a campaign committee, or a newsletter fund. Advertisements in convention bulletins and admissions to dinners or programs that benefit a political party or political candidate aren’t deductible.” Political Action Committees (PACs) are included in this list as well.

Tax tips for home sellers

As the housing recovery begins to pick up steam, some home sellers will have gains on the sale of their homes for the first time in nearly a decade. The good news is that the tax code recognizes the importance of home ownership by providing certain tax breaks when you sell your home.

THE MOST IMPORTANT THING TO KNOW when selling your home is that your sale qualifies for an exclusion of $250,000 in gains ($500,000 if married filing jointly) if you owned the home and used it as your main home during 2 of the last 5 years before the sale and you have not claimed any exclusion for the sale of another home within the last 2 years.

The 24 months of residence can fall anywhere within the 5-year period. It doesn’t even have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.


IF YOU HAVE TO SELL YOUR HOUSE because you’re relocating for work, you might be able to deduct some of your moving expenses. Deductions could include transportation costs, travel to the new place, storage costs and lodging costs.

YOU CAN DEDUCT YOUR PROPERTY TAXES for the portion of the year that you owned the home – up to the date of the sale.

SOMETIMES YOU NEED TO IMPROVE YOUR HOME to get it sold. If you make home improvements that help sell your home, and if they are made within 90 days of the closing, they may be considered selling costs, which could be deductible.

IF YOU PAID POINTS TO LOWER YOUR INTEREST RATE when you refinanced your home, you might qualify for an additional deduction. Because you can deduct a proportional share of the points until the loan is paid, when you pay off the loan through a sale,you can deduct the remaining value of those points.



    1. You have a taxable gain on your home sale and do not qualify to exclude the sale.
    2. You received Form 1099-S. If so, you must report the sale even if you have no taxable gain to report.
    3. You wish to report your gain as a taxable gain because you plan to sell another property that qualifies as a home within the next two years, and that property is likely to have a larger gain.



    1. You have a taxable gain on your home sale and do not qualify to exclude the sale.
    2. You received Form 1099-S. If so, you must report the sale even if you have no taxable gain to report.
    3. You wish to report your gain as a taxable gain because you plan to sell another property that qualifies as a home within the next two years, and that property is likely to have a larger gain.








IF YOU DON’T QUALIFY for the Section 121 exclusion (left), you will owe taxes on any profit, so make sure you deduct all your selling costs from your gain. Some of the selling costs could include:

    • Your real estate agent’s commission
    • Legal fees
    • Title insurance
    • Inspection fees
    • Advertising costs
    • Escrow fees
    • Legal fees

Tax implications of selling your home

Exclusion of Gains on Home Sale

Before any large financial decision, you should ask yourself “What are the tax implications of this?” Failing to consider the tax impact on some decisions can lead to an unpleasant surprise come tax season. Fortunately, the sale of your personal home is a financial event where you can generally expect favorable tax treatment. That is because the tax code allows you to exclude up to $500,000 in capital gains when selling your primary residence, provided you meet certain requirements.

So what are capital gains? Capital gains are any profits from selling personal property above the original purchase price. If you purchase a painting for $10,000 and later sell it for $15,000 you have capital gains of $5,000, which can be taxed at rates up to 20%. However, when you sell your primary residence you can avoid the capital gains tax on the sale if you meet the following three requirements:

  1. Ownership Test: You need to have owned the home for at least 24 months out of the last 5 years leading up to the date of the sale. If you are married, only one spouse needs to own the property.

  2. Residence Test: You must have used the property as your primary residence for at least 24 months out of the last 5 years. These 24 months are not required to be consecutive. If you are married each spouse must meet this test to qualify for the full exclusion.

  3. Lookback Test: You cannot have taken the exclusion for the sale of another property in the last 2 years.

If you meet these three requirements, then you can exclude up to $250,000 ($500,000 if married and filing a joint return) in capital gains from the sale of your home. If you have capital gains in excess of the exclusion amount you will be required to pay taxes on the excess amount.

Partial Exclusion

If you do not meet the above requirements you may still be eligible for a partial exclusion if you sold the house for one of the following reasons:

  • Work-Related Move: If you or your spouse get a job that is at least 50 miles further from your house than your previous job you can qualify for the partial exemption.

  • Health-Related Move: If you move to obtain medical treatment for yourself or a family member, or to provide medical or personal care for a family member suffering from a disease or injury.

  • Unforeseeable Events: You or your spouse:

    • Dies

    • Gets divorced or legally separated

    • Gives birth to two or more children from the same pregnancy

    • Becomes eligible for unemployment compensation

    • Becomes unable to pay basic living expenses for the household due to a change in employment status.

If one of these special circumstances applies to you then you can receive a partial exemption based on the percentage of the 2-year residence requirement that you meet.

Example: One year after purchasing your home, you or your spouse gives birth to twins and you decide to sell your home to find a larger home. Even though you do not meet the 2-year ownership and residence requirements, you can receive a partial exclusion of the capital gains since the move was due to the birth of twins. In this case your exclusion would be one half of $500,000 since you resided in the house for 1 of the 2 required years. 


Our homes are one of the few assets that we own that have the potential to appreciate. If you own your home and live in it for more than 2 years before you sell it, you can exclude up to $500,000 of the gains from your taxable income. If you do not meet the 2-year requirement you may still be eligible for a partial exclusion if one of the provided special circumstances applies to you.


Tax consequences of reinvesting your mutual fund distributions

If you hold shares of a mutual fund in a taxable investment account (taxable meaning not held in an IRA or other “deferred” investment account), then you will receive distributions from this fund in the form of interest, dividends or capital gains. These distributions are likely automatically reinvested into more shares immediately after they are received. While this can help you keep your money productive, it can also create a number of tax consequences when these funds are not held in tax-deferred accounts.

Taxes on Reinvested Distributions

When these funds are held in a taxable account, you will pay taxes on the interest, dividends or capital gains in the year that you receive them, even if they are immediately reinvested back into the fund. This can come as a surprise to some taxpayers who think they shouldn’t owe any taxes since they never pulled the money out of the account.

Disallowed Losses

When a fund that you hold shares in has declined significantly in value you may sell those shares to prevent any further decline in value as well as to realize a tax deduction for your losses. However, if the proceeds are automatically reinvested back into the fund you may cost yourself the tax deduction for those losses due to the IRS “wash sale” rule. This rule states that when you purchase “substantially identical” shares within 30 days before or after the loss sale, your deduction will be reduced by the amount of purchases made within the window. If you plan to sell shares of a fund to realize a loss, make sure the proceeds are not automatically reinvested in a similar fund within 30 days.

Records Nightmare from Long-Held Stock

When you sell shares of a fund you need to report the original purchase price in order to reduce the taxable gain on the sale. If you only held the shares for a few months or a few years, then this likely is not a cause for concern. The fund company should know exactly when you purchased the shares and how much you paid. However, if you purchased the shares many years or even decades ago, you could find yourself making countless phone calls and digging through old records to try and determine your basis in the shares. Worse, if you cannot find your original purchase price the IRS will set it at zero and you will owe capital gains taxes on the entire sale.

Reinvesting at the Top

You are likely to receive more distributions from a mutual fund after the fund has a profitable year. If your distributions are set to be reinvested automatically this can lead to you routinely buying more shares at their highest price and fewer at their lowest price. In these situations, it may be more advantageous to manually invest the distributions in other funds that are not at their peak price.


Automatically reinvesting your earnings from mutual funds is an efficient way to keep your money active in the market without requiring your constant supervision. However, it can also create some unforeseen tax consequences at the end of the year if those funds are not held in a tax deferred account such as an IRA. Being aware of these potential tax consequences and monitoring your investment account throughout the year can help you avoid surprises and headaches when you file your taxes at the end of the year.

Maximizing your deductions in light of tax reform

The Tax Cuts and Jobs act of 2017 signaled the largest tax reform in decades. The law includes numerous changes to both personal and corporate taxes. We discussed the most important changes relevant to you a few months ago in Five Changes to Be Aware of Under the 2018 Tax Reform.

One of the most promoted aspects of this plan was the doubling of the standard deduction to $24,000 for joint filers and $12,000 for single filers. While this may provide additional tax savings and simplify filing for some taxpayers, it also reduces the potential tax savings provided by certain expenses such as medical expenses, charitable donations, or home mortgage interest. As a result of these changes, certain tax strategies are more valuable than ever to make the most of your expenses.

Health Savings Accounts

Medical expenses have always had a high threshold to meet before they will provide a tax benefit. Generally, medical expenses can only be deducted when they exceed 10% of your adjusted gross income(this was temporarily reduced to 7.5% for 2017 and 2018), and even then only the portion that exceeds that threshold can be deducted. This means that if you earn $100,000 and you have $12,000 in medical expenses you will only be able to deduct $2,000. With the increased standard deduction, you will have a harder time taking advantage of your medical expenses even when you manage to exceed the 10% threshold. The best way to bypass these heavy requirements for medical expenses is to set up a Health Savings Account. An HSA allows you to save up to $7,000 per year for medical expenses and deduct the full amount, without worrying about the 10% threshold or itemizing deductions. For more information on HSAs you can read Avoiding the 10% Threshold for Medical Expenses.

Charitable Contributions

If you make significant charitable contributions each year you may want to consider setting up a donor-advised fund to maximize your tax benefits. A donor-advised fund is a separate account that you make contributions to and then distribute those funds to the charity of your choice. How does this help you with your taxes? With a donor-advised fund you receive the tax deduction when you contribute to the fund, not when you make distributions to charitable organizations. This allows you to maximize your deduction by contributing a large amount to the fund in one year and spreading the distributions over 2 or more years.  By properly staggering your contributions to the fund you can avoid the limitations on your deduction created by the increased standard deduction. For more information on how a donor-advised fund could reduce your taxes please contact us.

Home Office Deduction

If you run your own business or if you own rental property then you may be eligible to take a deduction for a home office. This will allow you to deduct a portion of your mortgage interest, real estate taxes, utilities and home-owners insurance. While this deduction is not new for 2018, the potential benefits it provides are greater than ever due to the increased standard deduction likely limiting the benefits of itemizing your mortgage interest and real estate taxes as a personal deduction. For more information on the home office deduction you can read Unlocking the Missed Deductions of a Home Office.


One of the goals of the tax reform was to simplify the filing process. While this goal may have been achieved for some taxpayers, maximizing your tax deductions in 2018 requires more creativity and critical planning than ever before. With the increased standard deduction and the additional restrictions on itemized deductions, the actual tax benefit of many expenses has been greatly reduced. By implementing some of the strategies discussed in this article you can continue to realize meaningful tax savings from these expenses.

Making the most of your charitable donations

As we approach the holidays you are most likely busy planning visits to family or getting ready for your holiday shopping. You are also likely planning to give some of your money or property to charity. Many charitable organizations report that they receive a majority of their donations in the last three months of the year. With this in mind, we want to share with you some simple guidelines to be aware of to make sure that you are properly rewarded for your generosity come tax season.

There are two different types of donations that you can deduct on your tax return, donations made with cash, and donations made with non-cash items such as clothing, furniture, or food.


Through the internet, it is easier than ever to give money to those in need. Most charitable organizations now have a website where you can donate online. This surge in online donations has led many to donate smaller amounts to various organizations, rather than one large donation to a specific organization. While this provides donors the freedom to give to the cause they most believe in, it has also blurred the lines between what is a tax-deductible donation, and what is not. To help determine which donations are deductible, see the center box.

Once you have determined that the organization you have chosen meets the five basic guidelines, you need to make sure that you have proof of your donation. This can be accomplished with one of the following:

  • A receipt or other written document from the organization, showing the name of the organization, the date of the contribution, and the amount of the contribution

  • A cancelled check or credit card receipt that shows the name of the organization, the date of the contribution, and the amount of the contribution.

Keep in mind that you can also donate to most governments within the United States, if you ever feel inclined to pay more in taxes.​ (In which case we may not be the firm for you)


Noncash donations typically involve dropping off outgrown clothes or unwanted furniture at your local Goodwill or Salvation Army. The guidelines for determining if noncash donations to an organization are the same as the guidelines for cash donations. To determine the amount of a deduction you can claim for your noncash donations you need to know the Fair Market Value of the items. The Fair Market Value is the amount you could reasonably expect to receive if you sold the item instead of donating it. If you need help determining the value of your items, you can use Goodwill’s Valuation Guide. When you make a donation to Goodwill or a similar charity, you should make sure you receive a receipt and keep a record of the items that you donate. This will ensure that you can take the tax deduction to which you are entitled.

FIVE BASIC GUIDELINES to keep in mind when determining which donations are deductible:

  1.  Donations must be made to a corporation, trust, community chest, fund, or foundation. This means that donations to an individual, or a group of individuals is not deductible. For example, donating to a group of doctors who are going to the Philippines to provide medical care is not deductible, but donating to an organization that will send doctors to the Philippines is deductible.

  2. The organization must be created or organized in the United States. The organization can still operate overseas, as long as it is based domestically.

  3. It must operate for religious, charitable, scientific, literary, or education purposes, for the promotion of amateur sports, or for the prevention of cruelty to children or animals.

  4. It must not operate for the profit of a private shareholder or individual

  5. It must not engage in political lobbying

How could the proposed tax reform affect you?

President Trump announced his proposal for tax reform last month. Similar to the changes he was proposing last year while on the campaign trail, this plan is being promoted as a tax break for the middle class.

Hoping this might be true, we ran some analysis to see how the proposed changes would affect you, our clients. A typical TAMCO client is a married couple with one child making $115,000 per year. Experts differ on how much you have to earn to fall into this camp, but a wider definition would simply exclude the poorest 20% and the wealthiest 20% of earners. If you accept the definition of the middle class as the “middle 60%,” that would describe families making between $50,000 and $140,000 per year. So we feel that our typical client fits pretty well into the middle class.

Our analysis showed that the proposed changes would negatively impact 80% of our clients by causing a significant tax increase to our families. The average increase would be an additional $2,300 in federal income taxes paid to the government. It should also be noted that we had to make a few assumptions to conduct the analysis, as various aspects of the plan have yet to be finalized.


So why is a proposal that is intended to lower taxes for the middle class actually raising them for our small cohort of taxpayers? We have highlighted a few of the proposed changes below:


One of the biggest promises of this plan is the nearly doubling of the standard deduction to $12,000 for single filers and $24,000 for married filers. While this means a bigger deduction for those who claim the standard deduction, the plan would hinder those who choose to itemize their deductions by eliminating the lions’ share of these tax breaks, including deductions for state and local taxes, real estate taxes, and job-related expenses. This means that a majority of our clients will now no longer be able to itemize and will instead need to rely on the standard deduction.


The current tax code provides an additional deduction of $4,050 for the filer, spouse, and each dependent listed on the return. This “Personal Exemption” deduction would be eliminated altogether under the proposed reform. To help mitigate the loss of this deduction, the proposal would increase the child tax credit from its current maximum of $1000 per child. Although the exact amount of the increase has yet to be announced, most estimates predict an increase of $500. While this would lessen the blow of the lost exemptions, it would not fully offset the tax increase for most individuals.


Currently there are 7 tax brackets, with 10% being the lowest and 39.6% being the highest. Under the proposed model the brackets would be simplified to 12%, 25% and 35%. While the income ranges for these new brackets have not been specified, it is likely that the 12% bracket would replace the current 10% and 15% brackets, with the 25% bracket being extended to a higher income range. These simplified brackets are unlikely to make a material difference for anyone currently at or below the 25% bracket. The largest difference for individuals in this range will be the changes to itemized deductions and personal exemptions.

IT REMAINS TO BE SEEN what aspects of this plan will actually become law, but in the meantime you should be aware of the possible ramifications if it goes through in its current form.

If the plan gets passed as it is currently proposed, we expect four cohorts of taxpayers to be negatively impacted:

  1. Families with two or more children who own their home
  2. Taxpayers who have a significant mortgage payment
  3. Taxpayers in high income tax states like New York and California
  4. Generous taxpayers who give a meaningful portion of their income to charity

If you are in this category, then tax planning may be a necessary component of your future plans.