While each person’s tax situation is unique, here are some guidelines that might help you in the remaining days of 2017. As always, these are only guidelines. Be sure to consult with a qualified CPA tax planner before you make changes.
ONE: Speed up tax deductions
Taxes: The final tax plan limits federal deductions to a total of $10,000 for income, property and sales taxes paid at the state and local level. Make the most of your ability to itemize deductions now (but beware of AMT):
If you expect to owe state income taxes for 2017, or have state estimated payments due in January of 2018, you may want to pay those by the end of this year. Strategy: Capitalize on what may be a lost deduction for 2018, given that your state income taxes will be limited to $10,000 for 2018, particularly to those who live in high-tax states. Tip: Ask your CPA about paying contested state income taxes by the end of 2017 to get the deduction and continue to contest them in 2018.
Homeowners may want to consider prepaying their property taxes by year end (however the final version of the bill specifically prohibits it, it is unsure how that will be enforced). Deducting the full amount of your property tax bill in 2017 may prove additionally beneficial if your tax rate decreases for 2018.
Be sure to review the effect of any year-end tax planning strategies on the AMT for 2017. Deductions for property taxes and state and local income taxes may be disallowed if you fall in AMT. As a result, some taxpayers should not accelerate their costs, as they may have no tax benefit.
TWO: Review your holdings and capital losses
The final bill calls for no repeal of the alternative minimum tax (AMT).
The final tax bill lowers the top tier rate to 37 percent and leaves the capital gains and qualifying dividend rates of 20 percent intact. If you were planning to realize capital gains for a more-favorable tax treatment that may not be a concern. However, it’s always a good strategy to review your holdings and harvest any capital losses that may prove beneficial overall for your taxes.
THREE: Learn how your mortgage interest deductions might change
For residences purchased from January 1, 2018 to December 31, 2025, the mortgage interest deduction reduces the maximum amount of mortgage debt to $750,000 from the current law’s limit of $1 million. Individuals who takeout home equity loans will no longer be able to deduct the interest under the new bill if they are not tied to home acquisition debt.
FOUR: Being charitable makes a difference now; give it away
Consider making any additional gifts to a qualified charity by the end of 2017 to increase your deduction, as changes in the law will make it harder to deduct. Be sure to obtain a written acknowledgement from the charity on any gifts of $250 or more. Also review the possibility of donating appreciated stocks to charity. You will get the benefit of shielding the gain from taxes, getting a larger deduction and giving more to the charity. One tip: if you make online donations via credit card by the end of December 2017, you may write off the donation for 2017.
FIVE: Push deductible medical expenses to next year
Under the new law, if medical expenses exceed 7.5% of your adjusted gross income then you can claim those as a deduction. This threshold percentage is down from the current 10%. Medical expenses include health insurance premiums, medical and dental services, prescriptions and mileage. Consider bunching medical deductions for 2018 in order to deduct more over the threshold, if possible; if it benefits your tax situation.
SIX: Make a quick assessment of your 2017 tax liabilities
If you have had an unpredictable 2017, make a quick projection of your federal and state income taxes to be certain you have enough paid in to avoid penalty. If you are short, you may consider increasing your withholding by year-end, or bumping up your estimated payments. If you look to be substantially overpaid, you may adjust your final quarterly estimate, or withholding.