The possibility that there will be major tax reform in the next several months makes tax planning for this year more important than ever. The possibility of lost deductions along with some lowering of tax rates for next year, means that you can save big on taxes in if you accelerate deductions in 2017 and defer income, if possible, to 2018 and beyond, when rates may be lower. Here are some tips you can use between now and the end of the year.
1. Try to defer your income to 2018 when tax rates may be lower. If you are getting a bonus, ask your employer to pay it in January. The same with consulting income or self-employment income.
2. Accelerate deductions into 2017. Property tax deductions and state tax deductions may not be available in 2018. So pay your January property tax bill in December and if you are required to make an estimated state tax payment, don’t wait until the due date of January 15th – pay it before the end of the year.
3. Another deduction that may or may not be available in 2018 is the medical expense deduction. If you can control the timing of costly non-urgent medical or dental procedures, it may be worthwhile to have them done in 2017 or pre-pay for the procedures. Medical deductions still can’t be deducted unless they are over 10% of your adjusted gross income so we are talking about a large dollar expense.
4. For 2017, you can make an election to take a deduction for sales tax if it is higher than the state and local income tax deduction. So if you are considering a very large purchase, it may be better to buy it in 2017 when you can still elect the sales tax deduction. The choice may not be available in 2018.
5. If you are considering purchase of an electric vehicle, the $7,500 credit may not be available in 2018 due to the new proposed tax changes. So buy it before the end of the year. You can go online to obtain a list of vehicles for which the credit is still available. The amount of the credit varies by vehicle, and some no longer are eligible for the credit. The current regulations state that once the manufacturer reaches 200,000 sales of the vehicle, the credit is not available for that vehicle.
6. Charitable donations may or may not be limited in 2018. Even if not limited, the standard deduction increase will make the deduction for charity less valuable or not deductible at all. So if you are planning a big donation, do it while you still can take advantage of the deduction.
7. Contribute the maximum allowed to your 401K plan or traditional IRA. This is always a good planning tool in any tax environment. The maximum allowed for the 401K in 2017 is $18,000 per year and $24,000 if you are over 50. The maximum for a traditional IRA is $5,500 and $6,500 if you are over 50.
As always, there are exceptions and limits to all of these tips. It’s best to consult with a tax professional before the end of the year to be sure to take advantage of all the tax benefits available to you.