The Senate and the House have both released their proposed versions for tax reform. While they work to iron out the differences, consensus has it that the bill will probably take effect on January 1, 2018, even if it has to be made retroactive at some point during 2018. Certain opportunities are poised to disappear next year and action can be taken by December 31st of this year to take advantage of the current tax laws. Year-end tax moves will likely be more important this year as the government is trying to implement new tax laws for 2018. In preparation for the potential passing of the bill, we have outlined a couple ideas to consider before year end.
Pay Your Property Taxes Early
Currently you can deduct the property taxes you pay from your federal income taxes. However, under both the Senate and House versions of the tax reform bill, it is likely that your ability to itemize property taxes in 2018 will be limited to a maximum of $10,000. If your property taxes are greater than $10,000 per year (this includes your personal residence and second home), you should consider prepaying your 2017 property taxes (due February 1, 2018) before December 31, 2017. This will allow you to take the full deduction for 2017 in the event the law changes for 2018. If your property taxes are under $10,000 per year, then this strategy does not apply to you.
Prepay 4th Quarter Estimated Tax Payments
Another item being discussed is the state income tax deduction. Currently, taxpayers can deduct their state income taxes, but tax reform is set to eliminate this deduction. To the extent possible, you should consider paying your 4th quarter estimated tax payment before December 31, 2017. By paying it before 2018, you will ensure you get the deduction in the event the law changes, and if you overpay on your estimate, you will still get a refund for 2018.
Other Ideas to Consider
Beyond the ideas mentioned above, there are a few more moves you can make before year end that could result in more tax savings. Both the House and Senate tax reform bills are considering dropping the deductibility of the interest you pay on your home equity loan. If possible, move this debt higher up on your priority list as the loan will be more expensive if the interest does in fact become non-deductible.
If you are self-employed, it also may make sense to defer income until 2018. At multiple levels, the tax rate is expected to fall and you can potentially benefit by deferring income into 2018 by paying less taxes. Lastly, consider increasing your charitable contributions. Under both the House and Senate tax reform bills the standard deduction would increase and certain other deductions would disappear, resulting in fewer people being able to itemize deductions, which is the only way to take advantage of the deduction for charitable contributions.
It is worth considering the aforementioned ideas in the event the proposed tax bill gets passed and is effective January 1st, 2018. As always, there are certain details that pertain to your individual situation, so it is best to speak with your CPA or Tax Advisor before taking action. They will be able to help you make moves that are in your best interest.
If you have any questions, please do not hesitate to contact us.