New Tax Bill And What To Consider Before Year End

Congress is poised to pass a 503-page law that fundamentally restructures the US tax code. If the bill passes, new tax rates and countless other provisions would go into effect on January 1, 2018. Most of the old rules, though, would still apply in the last two weeks of 2017, and that gives individuals a shrinking window of time to employ strategies that would lower their taxes for next year’s tax season. 

Here are the things to do BEFORE year end:

Charitable Contributions. If you are planning on making charitable contributions next year, you’re probably better off making them this year. The logic works this way, you must itemize deductions to take charitable contribution deductions on your tax return. If you don’t itemize, a married couple gets the standard deduction of roughly $12,000 in 2017. Between home mortgage interest, charitable deductions, state and local income taxes and property taxes, etc... most taxpayers are better off itemizing deductions than taking the standard deduction. It’s not hard to accumulate more than $12,000 in itemized deductions in order to exceed the standard deductions.

If the bill passes, the 2018 standard deduction is increased to $24,000. You will now need to have more than $24,000 in itemized deductions to benefit from things like charitable deductions. If you regularly make charitable contributions, along with other itemized deductions that EXCEED $24,000, you will still get the tax benefits from giving charitably in 2018.

In addition, tax rates will go down in 2018. Taking charitable deductions in 2017, with higher rates gives you more “bang for the buck”.

Property Taxes and State Income Taxes. The new law limits the Property Tax and State Income Tax deductions to $10,000. Again, if you can pre-pay 2018’s taxes today, you may be better off. Taking your deductions in 2017’s higher tax rates give deductions a bigger bang for the buck…. And you are not limited to a “cap”.

If you are going to owe State Income Taxes, pay them before year-end to get the deduction in 2017!

You may want to talk with your accountant before year-end to determine if any of these strategies will work for you.

Let me know if you have any questions
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Happy Holidays!

MPBWM