Year-End Reflections on the New Tax Law
We interrupt your busy holiday season with a reach-out on the recent U.S. tax code overhaul. While the ink still dries on this sweeping new legislation, you may be wondering whether there are ways you can or should spring into action immediately, before year-end, to reposition yourself for the new law of the land.
First, we want to emphasize that the new rules are not retroactive. Your 2017 tax return – the one due this April – will still be prepared under pre-reform law.
Practically speaking, this means there is probably not a great deal you must do right away. The big issues for end of the year planning are regarding charitable giving and whether to pay next April’s property tax installment as well as any remaining state income taxes you will owe for 2017. It is difficult to address this in a brief format like this, but it is fair to say that, a) if your total state income taxes, as well as the property taxes on our primary and vacation homes exceed $10,000 annually, and b) your total itemized deductions in 2018 will be below or near $24,000, it may be in your best interest to prepay these taxes this year.
In the meantime, here is our general take on how to position your year-end tax planning choices.
First up, your charitable giving. By design, most Americans are likely to fare better in 2018 by taking the higher standard deduction available under the new law instead of itemizing deductions on Schedule A. If it’s likely you will no longer submit a Schedule A next year, then charitable contributions will no longer help you reduce your taxes.
BUT, if you’ve been itemizing in years past – i.e., submitting a Schedule A – you’ll probably still itemize in 2017. Thus there may be benefits to making your 2018 charitable contributions before year-end, when they might still “pay off” for you and your recipients alike (subject to existing limitations). You can write those checks directly and if you mail them by December 31st, they will count as a 2017 deduction.
One other general consideration as we approach year end: Many Americans’ tax rates are expected to decrease next year. Thus, if there are reasonable (legal) ways to shift any reportable income into 2018, you may end up paying less tax on it.
As always with tax planning, there are a ton of caveats, catches and exceptions to these rules of thumb. We will definitely be having much deeper discussions in 2018 about what the new tax law means to your tax planning, your personal wealth and your lifetime goals. There is still a lot that we need additional guidance on, like how the new pass-through provisions will impact self-employed people and small businesses, as well as those who own rental property. Once we get additional clarity on these issues, we will be in touch.
We look forward to being here for you – today, tomorrow and throughout the years ahead.
Happy New Year!