We interrupt your busy holiday season with a reach-out on the newly passed U.S. tax code overhaul. While the ink still dries on this sweeping new legislation, you may be wondering whether there are ways you can or should spring into action immediately, before year-end, to reposition yourself for the new law of the land.
First, we want to emphasize that the new rules are not retroactive. Your 2017 tax return – the one due this April – will still be prepared under pre-reform law. Additonally, as we are not legal tax advisors, we always urge you to seek advice from your own personal tax advisor.
Do you value your limited holiday season time with loved ones far more than the potential to shave off some future tax dollars owed? If so, even if you might forgo potential savings, you might prefer to opt out of making any special tax-planning moves at this time (beyond those you’d be doing anyway).
Would you rather ensure every tax-related dollar is spared, even if it takes a little extra immediate time to do so? If that’s the case, there are at least two broad areas you may want to consider right away: 2017 deductions, including your charitable giving habits, and the timing of your taxable income.
First, let’s talk about your charitable giving. By design, most Americans are likely to fare better in 2018 by taking the higher standard deduction available under the new law instead of itemizing deductions on Schedule A. If it’s likely you will no longer submit a Schedule A next year, then charitable contributions will no longer help you reduce your taxes.
BUT, if you’ve been itemizing in years past – i.e., submitting a Schedule A – you’ll probably still itemize in 2017. Thus, there may be benefits to making your 2018 charitable contributions before year-end, when they might still “pay off” for you and your recipients alike (subject to existing limitations).
A few other things to potentially discuss with your tax advisor before year-end may include:
- Consider prepaying your 2018 property taxes if you own a home. There will now be a $10,000 deduction limit on all of your state and local taxes, including property taxes. Check with your county to make sure they will accept prepayment. Also, be sure to pay in person or online as mailing it most likely won’t get it there in time to be processed.
- Potentially prepaying your state and local income taxes. Some attorneys say the tax bill writers made a technical mistake which may allow this. Worst case may be that the IRS rules that you can’t take the deduction.
- Take now any business expenses you may have been considering taking next year.
- Consider prepaying your tax accountant for next year’s work, as it appears this eligible tax deduction will no longer be allowed.
One other general consideration as we approach year end: Most Americans’ tax rates are expected to decrease next year. Thus, if there are reasonable (legal) ways to shift any reportable income into 2018, you may end up paying less tax on it.
As always with tax planning, there are a ton of caveats, catches and exceptions to these rules of thumb. Therefore, we urge you to discuss these points and others with your personal tax advisor before year-end. We will no doubt be having much deeper discussions in 2018 about what the new tax law means to your tax planning, your personal wealth and your lifetime goals.