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2017 Year-end Tax Planning

posted Nov 1, 2017, 11:13 PM by Tim Isbell   [ updated Dec 26, 2017, 5:10 PM ]

This November, far more than most years, is a smart time to start tax planning because Congress is working hard on a major change to the tax code. And it may become effective in 2018, which complicates tax planning for 2017. We have some information about what's in the tax package, but everything is subject to change before the end of the year. Even so, now is the time to start thinking about and preparing to respond. Substantial money is at stake for individual taxpayers. 

Here are six key elements that Congress has penciled into the current version:

  1. Tax rates will go down in 2018. 
  2. Tax bracket thresholds will change.
  3. The Standard Deduction will double. The combination of this and #2 will cause many people who now file the 1040 long form (the one where you can itemize deductions) to move to the 1040A or 1040EZ (the two short forms where you do not itemize deductions).
  4. State and local taxes will no longer be deductible on the federal tax forms.
  5. The maximum amounts that people can invest each year in tax-advantaged retirement accounts (401k, 403b, 457, etc.) will go down.
  6. Termination of the ministers housing allowance tax break. This change is not likely to remain in the law, but it's under consideration. While it may come at some point, it will be subject to legal challenges.
  7. Late add-on 12/26: The ACA (Affordable Care Act, also knows as Obamacare) is not revoked. The individual mandate also remains in effect in 2018 but will die in 2019. So if you don't have what the ACA considers adequate health care in 2018, you will get fined.

If the above items remain in the bill and the change is effective for 2018, here are some strategies to consider and discuss with a tax professional: 
  • Pull some generosity and charitable contributions from 2018 back into 2017. See also Tax-Smart Donations.
  • Pull some mortgage payments from 2018 back into 2017.
  • Pull property tax payments from 2018 back into 2017.
  • Pull estimated state and local income tax payments from 2018 back into 2017.
  • Pull payments of some 2018 college tuition bills back into 2017 to take advantage of the American opportunity tax credit (which is only available using the 1040 long form).
  • Defer whatever income you can from 2017 to 2018.
  • In 2017, maximize contributions to tax advantaged retirement programs. 
  • Retired ministers who now can withdraw 403b money tax-free for housing may have to pay tax at their income rate on these withdrawals. So if you are tapping your 403b a little each year and taking advantage of this tax break, you may want to take as much as possible in 2017.
  • Late add, 12/26: Sign up for adequate health care or you'll have to pay the penalty under the individual mandate for 2018.

Note: I am not a tax professional. I am posting this material as a way to encourage readers to think about these areas and talk with a tax professional. 

Tim Isbell

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