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[UPDATED] Year End Tax Planning Ideas

As we draw closer to the end of 2017, the proposed tax-reform legislation is taking more of a defined shape and looming larger. Both the House & Senate have passed their own versions of the bill and now they must come together to merge the two into a consolidated package which can pass both chambers.

Both bills presented plenty of widely-anticipated changes as well as a few surprises. Because of the likelihood for lower rates and fewer deductions in 2018, it’s a great idea to review your plan for 2017 before the years’ end to make sure you’re maximizing your tax strategy.

As always, everyone’s situation will be different and what’s good for one taxpayer may not be good for another. Remember that we don’t ever want to take a course of action solely based on how it’s going to affect us from a tax-standpoint. Tax planning is not a vacuum. We need to make prudent decisions within the overall flow of your total financial picture. Therefore, I strongly suggest you consult with your adviser and tax accountant on your personal situation before putting into effect any of these suggestions.


[UPDATED 12/18/2017 - Consolidated Bill Released]

Well, that was quick! It looks like we have a consolidated package of legislation that will pass this week, barring any last minute surprises. They kept some stuff from the House bill, some from the Senate, and added a couple of last minute surprises.

I'm not going to enumerate everything here, but will rather touch on a few key items. Again, happy to review your individual situation if you want to get in touch.


The State and Local Tax deduction remains, but it is now capped at a unified $10,000 for both single & married filers. This means that you can't deduct more than the $10,000 for your state & local income and property taxes.

As mentioned in the original post, if you make enough (or live in a high tax state) to claim more than the $10,000 total, it may benefit you to pay ahead on your property taxes before 12/31/2017. Also, if you are a taxpayer who makes estimated tax payments, it may be in your best interest to pay your January 15th payment early, again before 12/31/2017.

Child Tax Credit Expanded

Personal exemptions are gone, which stinks, but many families will see an even larger benefit from an expanded Child Tax Credit. Credits are worth more than deductions because they are a dollar for dollar reduction of the actual tax due.

Currently, the Child Tax Credit a $1,000 per child credit that's phased out (disallowed) for household incomes above $110,000. In the new law, this gets increased to $2,000 per child and the phase out range is dramatically expanded to $400,000 for married filers.

Miscellaneous Deductions are Gone!

You are no longer able to deduct Tier 2 Miscellaneous itemized deductions. These were the deductions that your CPA said you couldn't take until they exceeded 2% of your AGI (adjusted gross income). This includes things like tax prep fees, un-reimbursed employee business expenses, home office deduction, etc.


Accelerate your Deductions

This traditional year-end advice may be even more applicable this year, as most taxpayers should see a lower marginal tax rate when the legislation finally passes. If the rates will be lower next year, then those deductions are worth more today! Its also possible that some of our most popular deductions will be significantly changed or eliminated:

  • State & Local Income Taxes

  • Mortgage Interest

  • Property Taxes

  • Medical Expenses

  • Alimony

  • Un-reimbursed Employee Business Expenses

Since we don’t know exactly what the future holds for each of those deductions, and since its reasonably clear that rates might be lower next year, it may be advisable to accelerate those deductions into the current year, where possible.

Accelerate Retirement Contributions

Again, within the context of your overall planning strategy, you might consider accelerating retirement contributions & savings into the current year. Same advice as above; lower rates next year means those deductions are more valuable in 2017. This has the added benefit of getting your retirement contributions in your account earlier for the benefit of your future retirement; on the magic “compounding interest train” you want to get on the ride as early as possible!

Accelerate Charitable Giving

Appreciated property works great here because you can generally take a deduction for the full value of that property without realizing the tax from the sale. It is strongly suggested not to donate any loss property to a charity because you will lose the ability to deduct that loss. Instead, sell the property, deduct the loss & donate the cash.

Watch your Withholding Rates for 2018

As the legislation takes its final shape in 2018, you may want to monitor and/or change your tax withholding rates at your employer. As always when thinking about your tax withholding rates, keep in mind any life changes such as getting married, getting divorced, starting a new job, a spouse going back to work, having a baby, starting a company, etc. If you have questions about how any of those situations affect you from a tax standpoint, get with your advisor!

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