This alert was posted prior to the passing of more recent tax legislation. Before acting on any of the information in the following piece, please consult with a tax expert to learn if and how current legislation might impact or nullify what is stated in this article.
Year-End Individual Tax Planning Amidst Uncertainty
As Congress works to negotiate a final version of the Tax Cuts and Jobs Act, taxpayers are wondering what — if any — action they should take. While the lack of certainty presents challenges, here are four tax planning ideas to consider while the final negotiations are underway.
- Defer income and accelerate deductions
If possible, it might make sense to defer income, including self-employment earnings and business income, and accelerate business deductions. If tax rates fall, you may not only benefit by pushing off the recognition of taxable income to 2018, but you may also reduce your overall tax burden by taking advantage of lower tax rates next year.
- Make state and property tax payments (but consider the AMT)
Making state and property tax payments early might enable you to take higher deductions on these taxes. The bill under consideration eliminates any non-business state and local income tax deduction and limits the total property tax deduction to $10,000 for married taxpayers ($5,000 for individuals). Therefore, you might consider prepaying any projected balance due on your 2017 state income tax return before year-end or accelerating the payment of future property tax payments. However, if paying these taxes in 2017 triggers the alternative minimum tax (AMT), this strategy may not be beneficial for you.
- Accelerate other itemized deductions
If proposed changes to certain other deductions pass, it might benefit you to pay for those costs now. With an increased standard deduction, coupled with limitations or eliminations of previously available itemized deductions, you may no longer receive a greater tax benefit by completing Schedule A, “Itemized Deductions”, with your tax return. If this applies to you, then accelerating deductions into 2017 such as mortgage interest, charitable deductions, investment expenses, medical expenses and the aforementioned tax payments could provide a significant benefit for you.
- Home equity indebtedness
The new tax law could possibly eliminate the deduction for interest on home equity indebtedness starting in 2018 while retaining some benefit for acquisition indebtedness. Therefore, prepayment of interest on your home equity debt may be advisable.
At Waldron Rand, our experts are keeping a close eye on the progress of the tax bill and how it might affect our clients. We will send a follow-up alert if and when tax reform legislation is signed into law. In the meantime, we invite you to reach out with any questions on the pending tax reform and to discuss how to apply these and other strategies to your unique tax situation.