Legislation is currently underway for massive tax reform, so changes in the tax law are very likely in the near future. What changes will pass and when they will happen are still being debated. Even in these uncertain times, there are things you can do now to minimize your taxes before year’s end.
Regardless of the tax reforms to come, here are some tax-planning opportunities under the current law that should be considered before the end of the year.
Taxpayers that might lose some of their itemized deductions in future years, as outlined in the current tax overhaul, should consider accelerating certain deductions that taxpayers have control over (though the benefits are significantly less if in AMT). Consider these options:
Pre-pay Tennessee Hall Tax, other state taxes
With the potential removal of the state income tax deduction looming for 2018, making the payment for state tax this year ensures the taxpayer will get the benefit of deducting the full state-tax payment.
Pre-pay real estate taxes
Another potential change under the current proposal is a limit on real estate taxes. Taxpayers with real estate taxes larger than $10,000 should consider paying them before Dec. 31.
Contribute appreciated publicly held securities to charity
This has two benefits: a deduction for the fair market value of the security rather than the lower cost basis up to 30 percent of adjusted gross income (or 20 percent if contributed to a private foundation) and the capital gain on the appreciated security is not taxed.
Give to a donor-advised fund
A donor-advised fund is a philanthropic vehicle that allows you to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time to various charitable organizations of your choosing. Consider it a charitable savings account. If you want to accelerate charitable giving for 2017 but don’t have any charitable organizations in mind to give to, a donor-advised fund is a great approach.
Other charitable donations
Get a receipt from the charity for all donations of property, including clothing and household items. The receipt should contain the name of the charity, date of contribution, and a reasonably detailed description of the donated property.
Give IRA distributions directly to charitable organization
If you are 70½ or older, you can make a direct donation from your IRA to a charitable organization up to $100,000 per tax year. The donation must be made to a charitable organization other than a private foundation or donor advised fund.
Health savings accounts
Maximize your contributions for the year. Contribution limits for 2017 are $3,400 for an individual, $6,750 for a family, and an additional $1,000 for those 55 and older.
Maximize 401K and IRA contributions
Make sure you have maximized 401K and IRA contributions for 2017 to get as much tax benefit as possible. The limit for 2017 401K contributions is $18,000 with an extra $6,000 allowed for those age 50 and older. The limits for IRAs are $5,500 with an extra $1,000 allowed for those 50 and older.
Required minimum distributions
If you’re 70½ or older, make sure you’ve taken the required minimum distribution from your retirement accounts. The penalty for not taking required distributions is severe – a 50 percent excise tax on the amount not distributed.
Roth conversions
Converting some of your traditional IRA to a Roth IRA may be beneficial if your 2017 taxable income and top tax bracket will be substantially less than normal for you — for example, if you have an abnormal loss from an active trade or business or if you are expecting a net operating loss. Converting from a traditional IRA to a Roth IRA provides several benefits. You will pay tax on the converted income, but Roth IRAs growth is tax‐free and distributions from Roth IRAs are also tax‐free as long as you are age 59 or older.
Harvest losses
Tax loss harvesting is the practice of selling stocks, mutual funds, exchange‐traded funds and other securities that are now worth less than what investors paid for them. By realizing or “harvesting” losses, you can offset taxes on gains from other investments. For investments held in taxable accounts, this can be a way to take advantage of positions that have experienced a loss and allow the tax savings to offset gains elsewhere.
The tax environment as we know it could be dramatically changed soon, regardless of which tax reforms are implemented. Make sure to take advantage of the tax-planning opportunities available under current law while you still can. Careful planning with your tax advisor can help you make the most of this unique time.
This story is provided and presented by LBMC.
Susan Goddard is a senior manager in the LBMC tax practice. She practices primarily in the wealth management group, focusing on all aspects of income tax planning, financial consulting and estate planning. Contact her at 615-309-2353 or sgoddard@lbmc.com. Sabrina Greninger is a senior accountant on LBMC’s wealth advisors team. She primarily works with investment partnership, real estate, and individual clients tax returns and consulting. Contact her at 615-309-2239 or sgreninger@lbmc.com.
Members of the editorial and news staff of the USA Today Network were not involved in the creation of this content.
