With only about two weeks left in the year, Congress has yet to pass promised tax reform, though a bill does appear to be imminent. As of the date of this writing, the House and Senate bills have been ‘reconciled,’ and Congress is promising to send a bill to the president by Christmas. If this happens, there will be little time to react before year-end, and a little advanced-planning is warranted. Based on what we know so far, we have prepared a few last minute tax ideas that are likely to save you money on your taxes as the laws change.
One major change is the doubling of the standard deduction to $24,000 for a married couple. Remember that under current law taxpayers can take the larger of the standard deduction or their itemized deductions. Many receive a significant tax break by itemizing deductions such as charitable donations, mortgage interest, real estate taxes, and state taxes. However, once the standard deduction doubles, most Americans will no longer need to itemize their deductions because the standard deduction will be larger.
Also, the state and local tax deduction will be capped at a total of $10,000 beginning in 2018. In high tax states like California, this change is likely to impact more of us and will remove a large deduction from our itemized deductions for 2018.
You can find your total itemized deductions from last year on your Schedule A to get an indication if this change impacts you, but given the pending changes here are a few common steps that will likely benefit you in 2017 and 2018.
Fully pay your state taxes. If you expect to owe state taxes when you file in April, consider making a payment for those taxes before December 31, 2017. Once again, your state and local tax deduction will be capped at $10,000 for 2018, and therefore, you may not receive a deduction for all of the State Income taxes you pay in 2018. If you make that payment before December 31st, it may still be deductible on your 2017 tax return.
Pre-pay your property taxes. In California, property taxes are due in two installments (November and March). Consider making your March payment before December 31, 2017, to take advantage of the deductibility of property taxes. By making your March payment early, you may be able to deduct that payment on your 2017 taxes.
Make additional charitable contributions. Making qualified charitable contributions is a good way to reduce your taxes in any year, but these donations may be even more important for 2017. Again, the larger standard deduction may mean that you will no longer need to itemize and may not receive a tax benefit for charitable contributions in 2018 if your total itemized deductions fall below the expected $24,000 standard deduction. If you are planning to give in 2018, consider making some of those donations early.
Obviously, everyone’s taxes are complex, and we suggest that you talk with your CPA about your specific situation. Further, there are many other changes in tax reform that we did not address in this article. Our goal is to highlight changes that are likely to impact many of you and to give you concrete steps that you can take quickly before year end. If you would like to discuss further, please give us a call.