Year-end Tax Planning: The New (Albeit Not Finalized) Tax Bill
December 8, 2017
You have no doubt heard plenty about the new tax bill. While the House and Senate proposals have some major differences in the details, and passage of any tax bill in not guaranteed, there are some things that are likely to come out of a final tax bill that may impact planning.1. Defer income into next year. While this is always a strategy worth considering, it appears that there are two groups that would specifically benefit from this. Those that earn between $156,150 and $237,950 are currently in the 28% bracket. Next year, they will likely be in a 25% bracket. Those earning between $19,050 and $77,400 are currently in the 15% bracket. Next year, they will likely be in the 12% bracket. These two groups could see real savings by deferring income.
2. Accelerate deductions into 2017. Many deductions are on the chopping block, particularly some that we in New Jersey are quite fond of.
• State and local income taxes –if you pay estimated taxes, pay your January 15, 2018 installment before the end of the year to possibly get a larger deduction in 2017.
• Residential real estate – the tax deduction is likely to be capped at $10,000 or so. Prepay taxes on your home before year-end.
• Residential real estate – the tax deduction is likely to be capped at $10,000 or so. Prepay taxes on your home before year-end.
• Interest – it is unclear, but the deduction for mortgage interest may disappear. Make your January, 2018 mortgage payment this month to get that last deduction in.
• Charitable contributions – this deduction appears to be safe, but is more valuable in 2017 than 2018 if you will be in a lower bracket. So don’t forget the needy at this time of year.
• Charitable contributions – this deduction appears to be safe, but is more valuable in 2017 than 2018 if you will be in a lower bracket. So don’t forget the needy at this time of year.
• Medical expenses – the deduction is gone under the House bill, the Senate bill would keep it. Thinking of an elective procedure? Get it done and paid for by the end of this year if total medical bills will be 10% or more of your adjusted gross income.
• Moving expenses – deductions are gone under both the House and Senate bills.
3. A few other thoughts.• Moving expenses – deductions are gone under both the House and Senate bills.
• As always, dump your loser stocks or mutual funds to be able to write off up to $3,000 against your earned income.
• Donate appreciated stock or mutual fund shares to charity. You get the full write off of the appreciated value provided that you have held the asset for more than one year.
• People age 70 ½ or older can donate up to $100,000 from their IRA to a charity. It counts toward your required minimum distribution and is not taken into income by you. Of course, you can’t double dip by then taking a charitable deduction for the donation.
• For anyone who qualifies to take up to $2,500 per year in student loan interest as a deduction, this deduction will likely be lost also. Consider accelerating a payment if it will help.
• The 2018 Social Security wage base will be $128,400.
• Donate appreciated stock or mutual fund shares to charity. You get the full write off of the appreciated value provided that you have held the asset for more than one year.
• People age 70 ½ or older can donate up to $100,000 from their IRA to a charity. It counts toward your required minimum distribution and is not taken into income by you. Of course, you can’t double dip by then taking a charitable deduction for the donation.
• For anyone who qualifies to take up to $2,500 per year in student loan interest as a deduction, this deduction will likely be lost also. Consider accelerating a payment if it will help.
• The 2018 Social Security wage base will be $128,400.
If you need further guidance with tax planning, then the attorneys at Post Polak are here to help you. Please call us at (973) 228-9900 and speak to Scott Novak, our chief taxation attorney.