The United States congress has passed a sweeping new tax legislation bill, which will impact nearly every American taxpayer beginning in 2018. With the beginning of 2018 just a few days away, we have highlighted a few year-end tax planning considerations regarding the new tax bill.
- If you typically make quarterly estimated tax payments, it may benefit you to make your fourth quarter state tax payment by December 31, 2017. The proposed tax bill will limit the deduction for state and local taxes to $10,000 for those who can itemize their deductions beginning in 2018. Paying 2017 taxes before December 31, 2017 will ensure you get the benefit of this deduction on your 2017 tax return (although taxpayers subject to AMT taxes may see this benefit limited or eliminated entirely).
- If you own a pass through entity, such as an LLC, S-Corp, or partnership, it may be beneficial to accelerate expenses into 2017 and delay income into 2018 to the extent possible. The tax bill offers reduced tax rates beginning in 2018, as well as new deduction for owners of pass through entities of up to 20% of taxable income derived from the pass through entity. If you are an owner in a pass through entity and you expect 2018 income to be consistent with or better than your 2017 income, this strategy may be right for you.
- For non-business owners, it still may be prudent to maximize certain 2017 ‘above the line’ tax deductions such as contributing to a deductible IRA or health savings account. This could reduce taxable income in 2017 before tax rates decrease – generally speaking – in 2018.
- If you plan to make charitable contributions in 2018, you may consider accelerating these contributions into 2017. This would apply in particular to individuals who currently itemize their deductions, but do not have itemized deductions in excess of $24,000 (married filing jointly). That is because beginning in 2018, the standard deduction will nearly double from the 2017 level. This will greatly reduce the number of taxpayers with enough itemizable deductions to exceed the new standard deduction.