2017 Year-End Tax Planning in a Year of Uncertainty
President Trump and the Republicans Congress are working to pass a new tax law. However, not all details are known. Furthermore, the current House and Senate bills differ on many significant provisions. Also, more revisions are expected as the two bills are reconciled and brought to the floor for votes. Finally, the Republicans failed to repeal the Affordable Care Act, so many provisions could change, if any changes are ever enacted.
With all the uncertainty, how do you plan? Very carefully – you need to augment your traditional year-end planning by anticipating likely changes.
Practical planning steps
First, be practical:
- Determine what income and deductions you can move from 2017 to 2018 or vice versa.
Second, review the impact:
- What happens if you shift any of these amounts of income and deductions to the other year?
Finally, watch for the impact of the Alternative Minimum Tax (“AMT”):
- If the AMT is repealed next year, how does that change your analysis? Deductions lost to the AMT this year could have value in 2018.
Both the House and Senate bills lower the tax brackets, so income should be subject to less tax in 2018. Furthermore, if the Medicare tax is eliminated, pushing income into 2018 could save significantly.
Conclusion: You probably want to move income to next year if you can.
One possible exception is the sale of your home: both bills move the residency requirement from two of the last five years to five of the last eight years. So, if you are selling to sell a home you lived in less than five years, try to close in 2017.
Exemptions and standard deduction
Both bills raise the standard deductions to $12,000 single/$24,000 married. This may offset deductions that you lose, as discussed below.
Conclusion: You probably want to move deductions to 2017.
Itemized Deductions and Credits
The deduction for state income taxes would be eliminated and deduction of property taxes either eliminated or capped at $10,000 (the current amount).
Mortgage interest on new home purchases would be deductible only on loans of up to $500,000 on the primary residence only.
And these deductions could be eliminated: student loan interest, moving expenses, tax preparation fees, casualty losses, medical expenses. Also, the deduction of alimony could be eliminated for divorces occurring after 2017 and electric car credits and bike to work exclusions could end.
Conclusion: If these deductions are capped or eliminated, you will want to move these amounts into 2017.
Income from an LLC, partnership or S Corporation could see a top tax rate of 17.4 to 25%. However, to avoid abuse (as seen with a similar law in Kansas), rules would be applied so that taxpayers will not simply create entities to have all of their income tax at the lower rate.
Conclusion: wait and see, read the fine print, then see if there are any opportunities to exploit.
Either the tax on estates would be eliminated or the credit doubled.
Conclusion: you may want to postpone your year-end gift planning.
Carefully review any income and deductions that you can still affect to see if moving will lessen the total taxes you pay for 2017 and 2018.
Good luck and best wishes for the holidays!
Most Read IRIS Articles of the Week: Feb 19-23
Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, Feb 19-23, 2018
Click the headline to read the full article. Enjoy!
I’d like to introduce you to Peggy. Born in 1956, Peggy will be 62 in 2018. She has worked in retail her whole life, the past twenty-five years spent in management. Peggy divorced from her husband 14 years ago, is still single and has no children. — Dana Anspach
This week the markets shrugged off last week’s fears and went back to the slow and steady melt up, despite economic news that looked likely to once again rock the boat. — Lenore Elle Hawkins
Themes established in 2017 across a wide range of markets and factors continued to resonate through the fourth quarter. Economic growth was strong and supportive of equity markets across the globe, a range of volatility measures reached all-time lows, and business and consumer sentiment remained elevated. — Yazann Romahi and Garrett Norman
Advisors and investors that feel they are hearing more and more about commodities and the corresponding exchange traded products in recent months are right. That is a natural result of dollar weakness and yes, the greenback is floundering again in 2018. — Tom Lydon
As the industry works to cope with new regulation, wades through an outpouring of new products, learns to satisfy investors’ shifting priorities and manages the active-passive debate, the viability of business units will be questioned, and at times radical measures will be taken. — Peter Hopkins
My hope is that this article points out some opportunities for you to make more money and serve your clients at a higher level and that you decide to do something about it. — Bill Bachrach
Whether the market is flying high or taunting your emotions with new lows and some bumpy volatility, here are four things every investor should keep in mind ... — Lauren Klein
Why financial advisors NEED to understand much more clearly the power of good digital market. With tools like AdvisorStream, it’s easier than ever to get the content you need to drive leads and referrals today! — Kirk Lowe and Matt Halloran
How do some firms and ideas go from nowhere to everywhere in a few short months? All of a sudden a restaurant becomes popular, a gas station gains a cult following, or a Broadway show becomes too popular to get a ticket for years. — Maribeth Kuzmeski
"Worldwide, $27.4 billion poured into fintech startups in 2017, Accenture reports, up 18% from 2016. With so much in play, it’s not surprising that 22 companies are new on this, the third edition of our list." — Chris Skinner
Many sensational headlines have been written the past few weeks about market declines, but two things have increased for sure: the viewership and the ad revenues of financial media organizations — Preston McSwain
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