Year-End Tax Planning and the New Tax Bill

Financial Advisor Sitting In An Office And Typing On A Laptop + Year End Tax Planning and the New Tax Bill


As we approach the end of 2017, it is our last chance to take actions to limit this year’s tax liability. With the passage of a major new tax bill, the idea of year-end tax planning takes on a new light. In this blog, we will focus on some ways that we can cash in on deductions that will be gone on January 1st. In our next post, we will discuss some year-end tax planning tips.

State and Local Tax Deductions

Starting next year, the state and local tax deduction will be capped at $10,000 per year. In many areas, taxpayers can prepay their 2018 property taxes before December 31st and claim the payment on their 2017 return. In fact, if you live where I do, you can even save a few dollars on your payment by paying in December rather than waiting until January.

If you pay quarterly state income taxes, make your fourth-quarter payment by the year’s end – instead of the mid-January due date when the deduction will be sharply limited. However, please note that you cannot prepay your 2018 estimated taxes in December. The new rules contain a provision that specifically denies a deduction for pre-paid taxes in those situations.

One note of warning: Check your prior tax returns, if you are subject to (or close to being subject to) the Alternative Minimum Tax (AMT), then there is no real tax benefit to paying either of these amounts early. They are both added back to income when your AMT liability is calculated.

Charitable Contributions

While charitable contributions will still be tax deductible under the new system, many taxpayers will no longer itemize their deductions next year as the standard deduction will double to $12,000 for singles and $24,000 for married couples.

If you have some cash to spare, it could be worth combining several years of donations together and write the checks before the new year, so you can claim the amount on your 2017 return.

You can even repeat this process every few years; i.e., make a few years of charitable deductions in a single year to help push your total amount of itemized deductions over the thresholds cited above.

You do not have to decide which charity will get the money immediately either – you can put it in a Donor Advised Fund now and parcel it out in the future. Once you put it in the fund, you can advise – not direct – the charitable organization on how your contributions will be distributed to other charities.

You can also donate appreciated stock rather than cash. That will allow you to avoid paying capital gains taxes on your gains, too.

Medical Expenses

Effective for 2017 and 2018 only, medical expenses are deductible as long as they exceed 7.5% of your Adjusted Gross Income (AGI). After 2018, the threshold will return to 10% of AGI. This is one of the very few changes in the bill that impacts 2017.

Wait to Bill Your Clients

If you run a cash-based business and only record income when you collect it, you can wait until 2018 to send out invoices to your clients and customers. By waiting, you can take advantage of the lower tax rates the income will be subject to in 2018. One note: If a client offers to pay you this year though, you cannot legally tell him no.

Wait to Convert Your Pretax Individual Retirement Account to a Post-Tax Roth IRA

If you are thinking about converting any of your pretax individual retirement accounts to a post-tax Roth IRA, you may want to wait until next year, if you think you will be in a lower tax bracket.

Concluding Thoughts

Importantly, the above provisions are generally set to expire after 2025, meaning that in 2026 we are scheduled to revert to current law. This approach was taken to keep the potential cost of the bill under the $1.5 trillion threshold which would have required broader support to pass.

To be truly effective, tax planning can be done on a year-round basis. However, we typically pay even more attention to taxes as December 31st approaches.

While Apprise Wealth Management does not help clients file tax returns, we recognize the importance that proper tax planning can have in managing your portfolio and improving your cash flow.

Follow us:

Twitter      Facebook

Please note that we post information about articles we think can help you make better decisions about money on Twitter.


Pathway to an Informed Retirement Newsletter

Weekly tips and suggestions to help put you on your pathway to an informed retirement

Current Posts

journey to omaha
Investment Management

Reflections on A Journey to Omaha

A review and some memorable quotes from this year’s journey to Omaha and the Berkshire Hathaway shareholders meeting.

Pathway to an Informed Retirement Newsletter

Weekly tips and suggestions to help put you on your pathway to an informed retirement

Schedule Free Consult

drop us a line and keep in touch

Got Financial Planning Questions?