ACT NOW TO MAXIMIZE 2017 TAX SAVINGS
As we await the President’s signature on what will be the biggest overhaul of U.S. tax policy in over 30 years, you may be wondering how these changes will affect you moving forward and, more urgently, what you can do now to help minimize tax. We have compiled a list of strategies you can implement right now (before Dec. 31) that can reduce your 2017 tax liability.
The DSJCPA team is well versed on the final tax bill and we encourage you to call our office to discuss its implications. Meanwhile, let’s start with a few timely recommendations.
1) Make charitable donations. The final bill maintains the itemized deduction for charitable contributions. However, since most other itemized deductions would be eliminated in exchange for a larger standard deduction ($24,000 for joint filers), charitable contributions post 2017 may not yield a tax benefit for many of us. Therefore, you may consider a boost to your giving this year to take advantage of the current year tax benefit; bear in mind, charitable contributions are limited to 50% of your adjusted gross income.
In lieu of, or in addition to, monetary donations, consider gifting shares of stock, especially stock with a low-cost basis. By doing so, you can avoid any associated capital gains while receiving a tax benefit of a charitable contribution on the full fair market value of the stock at the time of the gift.
Another option is to utilize a donor-advised fund to manage your charitable giving. You can make a donation of either cash or appreciated investments and take a current tax deduction for the full amount of that contribution. Then, over time, you can direct the use of the funds by giving to charities of your choice when you desire.
Finally, consider donating the Required Minimum Distribution, RMD, from your IRA to a charity. If you haven’t already taken your RMD, you can contribute the amount to a charity and it will be excluded from your gross income.
2) Prepay state and local income taxes. The final bill would set an annual cap of up to $10,000 for your combined property tax, state and local taxes and sales tax beginning in 2018. Meanwhile, for 2017, the state and local tax deduction has no ceiling. Therefore, you may want to project your tax liability to the State for 2017 and submit an estimated payment prior to year end to cover the projected balance due. Similarly, depending on where you live, you may be able to prepay a portion of your property tax prior to December 31, 2017. For instance, in Nassau County, Taxpayers are able to prepay the second half of school taxes for the fiscal 2017-2018 year. In Suffolk County, you can prepay all of your taxes as they are assessed in advance for the full year.
Remember, if you want to prepay either state income tax or property tax you can do so provided you also consider the Alternative Minimum Tax. Make sure that you are not already subject to the Alternative Minimum Tax (AMT) or, as a result of the additional deduction, find yourself subject to the AMT. In that case, the benefit would be lost.
3) Make an extra mortgage payment. If you are able, take advantage of a larger interest expense deduction for 2017 by prepaying your January mortgage bill in December.
4) Prepay expenses and defer income. This is a traditional approach to year-end planning that remains a tried-and-true recommendation. We suggest cash-basis taxpayers: manage year-end bills and receipts, make contributions to retirement plans and/or accelerate bonuses.
5) Don’t make impulsive decisions. Well-meaning friends may offer advice and you may have read articles that have made recommendations; but don’t go by everything you hear or read. There have been numerous iterations of the bill and you may be relying on old or inaccurate information. If you learn of something that sounds like it might apply to you, check with our office first to discuss. A simple phone call to DSJCPA can save you from taking unnecessary action or making a costly mistake. We’re here with the knowledge to help you safely navigate these new changes. Don’t move forward blindly. Give us a call at 516-541-6549.