During December 2017, financial guru Ted Bauman recommended a number of techniques that could help U.S. taxpayers when they file returns in April. These strategies enable people to pay smaller taxes by benefiting from existing laws before they change. Americans can accomplish this without breaking or bending any rules.
Before reading Ted Bauman’s tips, it’s important to understand the effects of a tax bill that the legislature recently passed. Most of the new rules only apply to income earned during 2018 and beyond. They temporarily reduce tax rates for several years.
The standard deduction will rise significantly. Taxpayers with relatively low incomes can plan on paying less as a result. Economists predict that most people won’t itemize deductions after this change takes effect. They only expect about one out of 20 citizens to favor itemization in April 2019.
An advantage of the new rules is that many business owners will qualify for a larger deduction when paying personal taxes. They can subtract 20 percent of 2018’s partnership, S corporation or LLC profits. Owners may deduct 17 percent of the net earnings that they generated in 2017.
— Ted Bauman Guru (@Ted_B_Guru) January 30, 2018
Ted Bauman’s Advice
On the other hand, some changes will increase the total expense for numerous families. Homeowners face new limits on deductions for home loan interest and property taxes. Lawmakers have banished personal exemptions as well. This change partially counteracts the benefit of a bigger standard deduction. Bauman offered these well-researched tips to help taxpayers make the best of the situation:
- He urged Americans to prepay 2018’s mortgage interest and property taxes before the end of 2017. If you followed this advice, remember to deduct both years’ expenses when you file your tax return in April. New limits and a higher standard deduction may prevent you from doing so in the future.
- The well-known financial expert advised people to pay for planned medical services in December and deduct them in April. An immediate change to the income threshold means that more people can subtract health expenses from taxable income received in 2017 and 2018. The Affordable Care Act penalty won’t expire for another year.
- Ted Bauman also called for his newsletter’s readers to make philanthropic contributions prior to January 1, 2018. Remember to gather receipts for any donations that you made last year. Many people will claim their final charitable deductions in April. Bauman has worked for various housing nonprofits and took part in the creation of a group called Slum Dwellers International.
- Although legislators decided not to eliminate the student loan interest deduction, Bauman pointed out that taxpayers could gain more benefits from paying interest in late 2017 instead of 2018. The investment guru earned his history and economics degrees at the University of Cape Town several decades ago, so he didn’t need to follow this advice.
- Ted Bauman encouraged taxpayers to buy cars before December came to an end. If you bought a vehicle last year, your timing increased the likelihood that you’ll qualify to deduct the state sales tax in April. Don’t forget to keep the sales receipt in a safe place.
- Bauman lives in Georgia, but he provided some advice for people in New York and other places with high state income taxes. He urged independent contractors to boost federal deductions by convincing clients to pay them before the end of 2017.
- The newsletter author and editor also suggested that taxpayers try to request yearly bonuses during December rather than January. However, people who pay low state taxes might benefit if they delayed income until January 2018 to take advantage of lower federal tax rates.
- Bauman offered highly sophisticated recommendations for people with businesses or retirement accounts. For instance, he urged some readers to switch to Roth IRAs while following the above-mentioned deduction advice. You should carefully estimate the potential savings to determine if it makes sense to convert a conventional IRA in 2018.
- The finance expert noted that IRS rules will only allow 1031 swaps involving real estate after January 1, 2018. He encouraged business owners to complete any other trades before New Year’s Day. This complex technique provides capital gains tax advantages for companies that swap physical assets.
- Ted Bauman advises people to think about establishing limited liability companies in 2018. Under the new code, some individuals can dramatically reduce their taxes by operating LLCs. Surprisingly, they might save considerable amounts of cash if they stop working as employees and become independent contractors. The effects vary depending on a person’s tax bracket.
Ted Bauman suggests using a knowledgeable tax preparer, especially when the rules change. If you file your own return, try to complete difficult tasks in the morning while you remain energetic. Readers who take Bauman’s advice can look forward to generous tax refunds in May. His monthly newsletter offers further financial tips, click here to sign up.