Congress is enacting the biggest tax reform law in thirty years, one that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax you will pay. Since most of the changes will go into effect next year, there’s still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way. Here’s a quick rundown of last-minute moves you should think about making.
Lower tax rates coming
The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Additionally, many businesses, including those operated as pass-throughs, such as partnerships, may see their tax bills cut. The general plan of action to take advantage of lower tax rates next year is to defer income into next year.
Disappearing or reduced deductions/larger standard deduction
Beginning next year, the Tax Cuts and Jobs Act suspends or reduces many popular tax deductions in exchange for a larger standard deduction. Here’s what you can do about this right now:
- Individuals starting in 2018 will only be able to claim an itemized deduction of up to $10,000 for the total of state & local property and income taxes. To avoid this limitation, you may consider paying your real estate taxes on your personal residence for 2017 no later than Dec. 31, 2017, rather than on the 2018 due date. Also, you may consider paying your 4th quarter state estimate payments and any anticipated state tax liability related to your 2017 state tax return by Dec. 31, 2017.
- The itemized deduction for charitable contributions won’t be chopped. But because most other itemized deductions will be eliminated in exchange for a larger standard deduction (e.g., $24,000 for joint filers and $12,000 for single), charitable contributions after 2017 may not yield a tax benefit for many because they won’t be able to itemize deductions. If you think you will fall in this category, consider accelerating some charitable giving by Dec. 31, 2017.
- If you won’t be able to itemize deductions after this year, but will be able to do so this year, consider accelerating “discretionary” medical expenses into this year (vision, dental, etc.).
- Other itemized deductions to consider paying by Dec. 31, 2017:
- Make an end-of-year payment on your home mortgage to pay off any accrued interest.
Please keep in mind that we’ve described only some of the year-end moves that should be considered in light of the new tax law. If you would like more details about any aspect of how the new law may affect you, please do not hesitate to contact your GBE advisor.