Year-End Tax Tips: Navigating Reform

While final tax reform legislation likely won’t be signed for a few weeks, there is a lot we can predict. Consider these strategies prior to December 31.

Defer income, accelerate deductions. Be aware of your tax bracket. The current top tax rate is 39.6 percent. Tax reform may cause your marginal rate to go down. If your new rate is lower, or the same as 2017, postpone income into 2018. Ask your employer to hold your bonus until January, for example, or put more money into your tax-deferred retirement plan. If you’re self-employed and use the cash basis of accounting, hold off sending invoices for year-end jobs so that the receipt of payment will occur in January 2018. Similarly, if you can accelerate deductions into 2017, you will achieve a permanent tax benefit by moving income from 2017 to 2018 (assuming your rate goes down next year).

Pay your state and property taxes early. The deductions for state income or sales taxes could be eliminated or reduced, so consider paying any 2017 estimated state balance by year’s end. Similarly, real estate taxes may be limited in the future so consider paying these taxes in 2017.

Pay down home equity loans. Interest on home equity loans may no longer be deductible in 2018. Consider paying interest you owe before year end. If this interest deduction is eliminated, consider restructuring your debt.

Consider accelerating charitable giving. While lawmakers plan to keep the charitable deduction in future tax plans, many more taxpayers will take the standard deduction and won’t get a benefit from their charitable giving. Since your charitable donations may not be as valuable going forward, take advantage now and consider accelerating 2018 gifts into the 2017 tax year if possible.

Take advantage of deductions. Changes being discussed include removing or reducing many deductions, including state and local taxes, moving expenses, tax preparation fees, and medical expenses. Additionally, the standard deduction is being expanded under both bills. You may be better off to opt for the standard deduction instead of itemizing deductions. Consider maximizing your deductions in 2017.

Source: MCM CPAs & Advisors, Cincinnati.com