2017 Year-end Tax Strategies in light of the Tax Cuts and Jobs Act
The tumultuous past few months in Congress have culminated with a final piece of tax legislation that, if nothing else, dramatically changes current tax law. Some will benefit, others will not.
However, even this late in the year, there are still a few things that can be done to help reduce the tax burden in 2017 for some taxpayers. As with most things in the tax world, situations vary and things that benefit one taxpayer may not benefit another. However, for many taxpayers, the following strategies should be considered.
Changes to individual tax brackets
For 2018 through 2025, the new law keeps seven tax brackets, but six are at lower rates. Most individuals will benefit from any strategy that pushes income into 2018, and pulls deductions into the current year.
Pay your 2017 State Income Taxes and Property Taxes in full before year-end.
Prepaying your 2017 state income tax liability in full before the end of 2017, rather than paying any amount due when filing your returns in April, will provide a deduction for 2017 (*), and the ability to deduct these taxes is significantly reduced starting in 2018. After 2017, the new law limits a taxpayer’s deduction for state and local income and property taxes to a combined total of $10,000 ($5,000 for taxpayers who file separately). [* Note, however, if you are subject to alternative minimum tax (AMT) in 2017, this benefit is significantly impacted, and may provide no benefit for 2017.]
Make an extra mortgage payment before year end.
If you have the ability, you will receive a larger mortgage interest expense deduction for 2017 by paying the January bill by the end of 2017. While mortgage interest remains deductible in 2018 under the new law, the higher standard deduction that many taxpayers will be utilizing in 2018 along with the fact that the tax brackets are changing, could make your deduction in 2017 more valuable.
Consider paying down any home equity loans
Beginning in 2018, interest on home equity loans will no longer be deductible. So accelerating any payments in 2017 provides an additional deduction for 2017 returns.
Make charitable contributions in 2017 – even ones you were going to make early in 2018
While the deduction for charitable contributions will still be available in 2018, it will likely be more beneficial for many taxpayers to make them in 2017. Beginning in 2018, the number of taxpayers who will itemize their deductions should decrease, due to the increased standard deduction in the new law. Since many taxpayers will no longer be itemizing, taking the opportunity to get the additional benefit this year makes sense.
As always, please do not hesitate to contact your BHM client service representative to discuss your specific tax situation. We wish you a very happy holiday seas