Four Things You Must Do Right Now To Minimize Your Taxes For 2018

No matter where you live, your 2018 tax return will be radically different from the one you filed for 2017. According to Kim Walker, head of her own Las Vegas accounting firm, itemizing and taking deductions is practically a thing of the past.

“With our clients,” Walker says, “75% of them itemized in past years. This year, though, it’s going to drop to 8–10%. The new tax code changes everything, but for most taxpayers, it actually makes things a lot better.”

Walker says that the core expenses that used to be itemized have gone away.

“The magic number is now $12,000 a year for individuals and $24,000 for married couples,” Walker says. “In exchange for that bigger standard deduction, a lot of things have disappeared. Your charitable deduction goes away, with a few exceptions.

“Also eliminated are fees for management of your brokerage account, tax account preparation fees, legal fees for estate planning, and employee business expenses. Your home office deduction goes away, and if you keep track of mileage that’s gone too. Travel, meals, and entertainment? Gone. This isn’t just the end of the three-martini lunch. It’s the end of the no-martini dinner. Those categories are all erased for employees.”

Walker estimates that 95% of her clients are small business owners who will be paying lower taxes in 2018.

“The tax changes are actually good for the middle class and business owners,” Walker says,

Aside from the simplified rules regarding itemizing, the new tax changes are actually hugely complex. Walker says the book she’s using in order to learn the ins and out of the new code is actually 646 pages long.

“That’s 646 pages of new legislation all related to the new tax law,” Walker says. “The average Joe can’t get through that many pages. I’m not even sure the average accountant can!”

Walker has four steps that every filer, and especially every business owner, must take prior to year end.

First if you have a sub S company or partnership or Schedule C income, you get an automatic 20% of that profit taken off your taxable income. That amount is your QBI number.

“If you’re a business owner,” Walker advises, “the first thing you want to do when you talk to your accountant is ask about your QBI number. It’s somewhat complicated to calculate, but your accountant can figure it out. That way, you’ll be competing on a level playing field with bigger businesses.”

Walker says that the next thing a business owner should do is keep track of deductions.

“You know the proverbial shoebox full of receipts that people supposedly throw at their accountants?” she asks. “Some of my clients don’t even have a shoebox. They don’t have any receipts at all!

“You can’t get a deduction if you can’t prove that you spent the money. So think about treating your receipts as if they were cash. You wouldn’t throw cash in the trash, would you? So hang onto your receipts and bring them to your accountant, because otherwise, you don’t get the deductions.

“I have a landscaper for a client. He drives around town installing trees, replacing dead bushes, whatever. He runs over to the nursery and buys something for cash and throws the receipt in the backseat somewhere. I tell him, keep a box in your truck! Those receipts are cash money when it comes to tax time.”

“It’s not just the landscapers,” she says. “My dentist clients are just as bed. In dental school, they train you to be a dentist, not to keep track of receipts. But if you don’t, you’re throwing money away.”

Third, Walker also advises clients that it’s more critical than ever to max out your 401k plan and put money away.

“It’s not new news necessarily to take care of your 401k,” she notes, “but you really have to ask, if you don’t have money saved for retirement, will the government fund your retirement in full later on? Doubtful!

“Will we have Social Security benefits down the road? Will benefits be cut? Who knows? Healthcare costs continue to go up, so it’s more important than ever so that you can fund your own retirement and not rely on the government. Never once in forty years of running my accounting firm have I had someone come in and say, ‘You know what? I just have too much cash for retirement.’ That’s a conversation I’ve never had.”

Finally, if you have credit card debt, Walker advises you to take the money that you would have put into paying down your credit cards and instead using it to fund your 401k.

“Fund your retirement — that’s the priority,” Walker advises. “And reduce your credit card debt over time. If it’s painful to pay off your credit cards, maybe that will affect your spending patterns going forward, and you won’t get in trouble again. If you have to scrimp and save to pay off your credit cards, that might be the lesson you need not to do it again.”

In sum: Know your QBI number, keep better records; fund your retirement; and prioritize your 401(k) over reducing credit card debt.

“Everybody’s got to pay taxes,” Walker says. “There’s just no reason to pay more than you have to.”