3. Watch for SALT workarounds
A big change that could affect many taxpayers is the tax overhaul’s controversial cap on state and local income tax (SALT) deductions, a provision Democrats have labeled a war on blue state Americans. The deduction, which used to be unlimited, will be capped at $10,000 next year. The new law’s near-doubling of the standard deduction to $12,000 for single filers and $24,000 for married couples filing jointly does mean fewer will itemize, but residents of high-tax, high-income states such as California, New Jersey and New York could wind up paying thousands of dollars more. A report by New York state’s Department of Taxation and Finance pegged the cost to New Yorkers alone at $14 billion.
States are busy devising workarounds to try and keep those residents from seeing a big spike in federal taxes next year—or moving to a lower tax state. Strategies being explored include plans to replace a state income tax with an employer-side payroll tax, and/or a system of tax credits for charitable donations made to state funds that support areas like education and health care. It’s not clear whether the attempts will prove administratively or legally feasible, however, especially since the Trump administration has pledged to fight such efforts.
4. Bunch up your donations
To try and get around that new SALT limit, one strategy advisers suggest for people who regularly donate to charity is to bunch up into one year what they would have given over multiple years. For those who itemize, charitable donations remain deductible on federal returns and can help lift married taxpayers who file jointly above the $24,000 standard deduction hurdle. By putting a few years’ worth of donations into a a donor-advised fund -- many financial services firms have units that offer them -- you can take the deduction the year you put the money in, but distribute the money to charity over multiple years.