Lions, Tigers, and Taxes – Oh My! Thoughts on 2018 Tax Planning

2017 Tax Assessment and 2018 Tax Planning

Ah, the taxes of a breadwinning mom. As a stifled accounting major, who used to dream of becoming a CPA but ended up working in IT, tax season is one of my favorite times of year. Not only because I get to see what my tax situation is like for the year, but because it’s now that I can check and see what I can optimize or tune for my taxes for next year.

And oh my, are there a lot of tax changes this year. I’m going to take a look back at my 2017 taxes, and a look ahead to 2018. I’ll also tell you some funny/amusing/entertaining stories about some of my past tax times so this isn’t just another dry tax article. Plus I’ll give you all my favorite recent articles and resources on the tax law changes so you can do your own detailed tax assessment, because taxes are fun!!!*

*Disclaimer – you may not find your taxes to be fun. This statement is not a guarantee of fun, entertainment or joy. If you find your taxes to be duller than dishwater, CMO is not responsible. Please write a thank-you note instead to either Abraham Lincoln or the Congress of 1909.

Tabby Cat Taxes
Even Bilbo the cat is excited for tax time!

Assessing My 2017 Taxes

Doing your taxes is a great time to take a nice, hard, long look at your income and tax situation. It changes from year to year, with changes in your life, in the tax law, and in your income or investments. So what’s right for your tax situation one year could be completely wrong the next.

As some examples, here are stories of different points in my tax life that I find memorable:

  • Losing Credits: For many years after my oldest son was born, my family qualified for the tax credit for retirement contributions. I remember that when I couldn’t get it anymore, I was both sad (to lose out on the credit) and happy (because our income had gone up)
  • That Time A CPA Messed Up My Taxes: I hired a CPA for literally ONE YEAR, the year my husband almost died of septic shock. I had to take a Roth IRA distribution that year in order to cover some expenses, which should have been fine – I had more than enough in contributions to cover. This “CPA” (using quotes here) completely messed up my taxes and treated it as a Traditional IRA distribution, complete with taxes and penalty owed. I immediately sent it back to her with the appropriate information from the tax code on how you’re supposed to treat a Roth. My taxes swung from owing over $2k to being owed back several hundred dollars. Ever since, I’ve only done my own taxes.
  • The Time I Owed Over $7k: Here’s a perfect example of the issue with not assessing your tax situation every year. Back in 2014, I had wrapped up my MBA and didn’t have any educational expenses that year, and I had also refinanced into a 15 year mortgage. Guess what that did to my deductions? That’s right, took them way down. PLUS I started phasing out of some of the deductions at the same time. I was shocked when I did my taxes that year, but luckily had savings to cover the shortfall. It taught me to not lose track of my annual tax assessment, and to remember to look ahead to next year.

So you can see why I’m a big fan of tax assessment and planning.

Tax Assessment – Checking In On Your Financial Situation

Tax time is a great time to see your progress from last year. What do I mean? Here’s a few examples for some of the more common tax situations.

Income. What’s happened to your taxable income since last year – has it gone up, gone down, or stayed the same?

Interest, Dividends, and Capital Gains. Are you earning the same as you did last year? More? Less? Hopefully the answer here is more. Although the past few years of interest rates did mean my answer was “less” in the interest category for a while.

Retirement plan contributions. Did you max out your contributions last year – if that’s a goal for you? How about Roth and Traditional IRA’s? Or did you leave money on the table? Remember too, you have until April 15th to make prior year IRA contributions. For 401k/403b/etc. you’ll just need to wait until next year (which is now this year)

College. If you have kids and your state offers a credit for 529 plan contributions, are you taking advantage of or maxing out that credit? If you have kids in college, or if you/your spouse are taking courses, are you getting the American Opportunity Tax Credit or the Lifetime Learning Credit?

Charitable giving. Did you increase your charitable giving from last year? Do you have things around the house you wanted to donate, but never quite got around to it?

Other. If you own a business, obviously you’ll be looking at your business income and expenses for this year, and compare them to last year. And if there are any “unusual” income, expense, or tax circumstances that don’t happen every year, you’ll want to make sure you’re familiar with the rules and situation.

I enjoy comparing this year with last year, to see what’s changed, what’s stayed the same, and where I could have done better. I think of it almost like an annual report for my tax situation.

Tax Planning – What Will Your 2018 Taxes Look Like

This is where things get interesting this year. There are so many changes in 2018 there’s just no way I can cover them all – nor would I want to try. After all, I’m just a hobbiest financial geek, not a professional. So instead here’s an excellent professional write-up of all the tax changes that likely impact you from Mr. Michael Kitces. It’s long, comprehensive and detailed-my favorite kind of tax article.

So what’s changing here at CMO central? Many things.

Feeling SALTy – I happen to live in Connecticut, one of the states planning to sue the federal government for its right to continue to impose high taxes on me. Thanks state! Yes I am over the SALT limit ($10,000 in state and local income taxes), so yes, this cap impacts me. And this leads to…

Standardizing – I’ve been itemizing since I first bought my condo back a few months before I turned 20. For literally my entire adult tax life, I’ve itemized. That’s about to change next year – with the SALT cap combined with ever-decreasing mortgage interest from that 15 year mortgage I took out five years ago, I’ll be taking the standard deduction for the first time ever. The deduction will be more than I get from itemizing in 2017, so I won’t be complaining. HOWEVER….

Personalizing – Also called the loss of the personal exemptions. When I look at my old itemized deductions plus personal exemptions vs. the new standard deduction, it’s pretty much a wash.

Lower Tax Rate – We’re pretty much all going to be in a lower bracket.

Child Tax Credit – I was above the start of the phase-out for the old child tax credit. Now with the new one, I’ll be able to capture it. As the mother of three, this is certainly a plus.

All in all, I expect my taxes to go down, but I’m not going to go out and spend that money. First of all, the tax changes are set to revert back in 2025, so they may ago away (although often at least some are made permanent at some point). And secondly, I know my goals. That money is going straight to killing that mortgage.

I’d recommend you also perform your own personal tax assessment – not only so you know what changes to expect, but so you can adjust your withholding accordingly, if necessary. After all, you want this money to go toward your goals, not the governments.

I Want To Hear From You!

What in your tax life has been memorable? Are you also excited about doing your personal tax assessment, or are you dreading it? Let me know in the comments!

Stay tuned for later this week – I’ve got my first Women on FIRE interview (you won’t want to miss it!) and on Friday I’m talking all about kids and taxes. See you soon!

Interested in making sure you protect your tax identity? Make sure to read this. Want to be financially free? You can see all my financial freedom strategy and articles here.

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16 thoughts on “Lions, Tigers, and Taxes – Oh My! Thoughts on 2018 Tax Planning”

  1. It took me years to develop an appreciation for the tax prep/planning process. I used to dread it and would wait until the last possible moment to file. In fact, I remember one year where I showed up at the post office at 11pm on Apr. 15 (this was before e-filing was a thing). I wasn’t the only one there and luckily, they had set up a make-shift drive through to accommodate us last-minute filers. I don’t dread it as much these days…though it’s still not my favorite. I do plan my withholdings now so that I get a little refund come return time, and that helps me be more timely. I am looking forward to filing 2018 in 2019 though. Like you, we will probably end up paying less but by how much, only time will tell!

    1. chiefmomofficer

      Wow, good thing they offered that drive through! I managed to get a refund of a few hundred, which is enough to cover the tax software and a bit extra. Nothing terrible or great.

  2. jumpstartfromscratch

    I can’t wait to get started on my taxes. I bought turbotax 3 weeks ago, but I am still waiting on forms from my broker. The forms won’t arrive until the end of the month.
    Hopefully I did everything correctly to take advantage of the $2500 from the American Opportunity Tax Credit.
    I’m also interested to see how much our 529 contributions help with the Virginia state tax.

  3. My memorable event is the year my return got lost in the mail and the IRS never got it. Yep… it was in the days when everything was snail mail and the good ole post office just lost it. So the IRS contacts me months later with a “you didn’t file” notice. Needless to say that was a hoot to get worked out.

    This year will be weird for me since it will be my first full year in semi-retirement and working part-time. So I’m trying to strategize my tax plan with my salary cut in half. And of course on top of it the rates have all been reduced with the new tax law, so I’ve got some number crunching to do. Either way, it’s Monday and I’m not working, so life is good 🙂

    1. chiefmomofficer

      Yikes! Luckily with electronic filing the “lost in the mail” doesn’t happen as often. And no work on Monday sounds awesome!

  4. It’s weird knowing that 2017 is the last year we’ll be itemizing for the foreseeable future. I actually was going to reassess my number of withholdings for 2018 and discovered the IRS withholding calculator hasn’t been updated yet with the tax reform changes. Guess I’ll be checking back on that later this spring…

    Also, I’m looking forward to your first Women on FIRE interview!

  5. When we first applied the child tax credit onto our 1040 and 540(California’s State Tax Form) last year was kind of memorable for us because it helped get us a refund for the first time as a married couple(filed jointly).
    Inputting all the info is pretty simple for us. It’s the W-2s, 1099s from our investment accounts, and our IRA contributions. Unfortunately California does not provide tax deductions for 529 contributions but it’s one less form to worry about inputting.

    1. chiefmomofficer

      That’s too bad about the 529. CT has a tax deduction for ours, which is a good thing. Luckily no extra forms that I’m aware of, at least not in TurboTax.

  6. I can’t wait to do my taxes as it also provides the opportunity to review and modify my financial moves. One year I did a lot of business travel and my wife did the taxes to help me out. She says I came home looking like she stole my hobby. But I digress. The new tax law will significantly benefit our family.

  7. 2017 is the first year in a while that we will actually get a refund instead of owing the feds. We can thank that on the Donor Advised Fund that we started last year.

    Mrs. Need2Save is on her ‘A game’ when it comes to taxes, so she’s basically estimated what are 2018 taxes will be. We are in Maryland where our SALT taxes are also high, although are mortgage interest is shrinking fast. 2018 will be the first time in 20 years that we will be taking the standard deduction instead of itemizing.

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