Six Things to do before January 1st 2018

December 23, 2017

This week the President signed into law a new tax bill that will affect nearly every american taxpayer.   The majority of the tax law will change your 2018 and beyond tax filing.

However, if your itemized deductions generally exceed the standard deduction for 2017, with a little planning, you could save money on your 2017 and 2018 taxes by using the new law to your advantage.  The problem is you have to come up with some money now, and if you are in the higher income brackets, the AMT tax may take away most of the advantage.

So here are six things, that you can do now to take advantage of the new tax law.  Because of the changes made to itemized deductions, those that can itemize will get a bigger tax break.

  1. Increase or prepay your Charitable Contributions.
    • Charitable contributions made in 2017 reduce your 2017 taxable income.  Since the Federal tax in 2017 is higher than the 2018 Federal tax, you can deduct your 2018 charitable contributions, by making those contributions in 2017 instead of 2018.
    • Only give what you can afford.  If you are in the 20% bracket, you can reduce your tax liability by 20% of the contribution amount.  I.E.  If you contribute $100, you will only get $20 back.
  2. Pay your 2017/18 property tax in 2017.
    • If you only paid 1/3 of your property taxes in November, pay the other 2/3 before December 31st.  You can deduct the property tax paid during the year it was paid.  The first half of your 2018 property tax was assessed in 2017, and can be paid in 2017.
  3. Pay your 2017 Oregon income tax in 2017.
    1. For 2017 the State and Local taxes paid is unlimited, which means if you generally owe taxes on Oregon, you might want to make an estimated tax payment before the end of the year.
    2. If we set you up for quarterly estimates, you may want to pay the 4th quarter Oregon estimate in 2017 instead of waiting until January 15th.
  4. Pay your Tax Prep fee, Union Dues, and unreimbursed business expenses now.
    1. If you pay union dues, professional membership fees, or buy a lot of supplies for your business that are not reimbursed by your employer, pay them before the end of the year.  The same thing applies to Tax Preparation fees, Financial planning fees, some Attorney fees, and Investment  Account Management fees.  Those fees have been deductible  if they exceeded the 2% limitation as miscellaneous itemized deductions.  They are deductible for 2017, but the new tax act eliminates the miscellaneous itemized deduction completely.
      • Miscellaneous Itemized Deductions include the following:
        • Job Hunting Expenses
        • Broker Administrative Fees
        • Union Dues
        • Unreimbursed Employee business expenses
        • Tax Return Preparation Fees
        • Hobby Expenses (limited to hobby income)
        • Some Attorney (protection of income) and Accountant Fees
        • Financial Planning Consultation fees
        • Broker Management Fees
        • and some other deductions
  5. Max Out Subtractions
    • If you can try to take the credit or deduction in 2017.
    • Teachers can get an educator subtraction of $250.  It stays for 2018 and beyond, but the subtraction is more valuable in 2017.
    • Max Out your 401k, 503b, or Traditional IRA.
    • Prepay your home-equity loan interest.  The deduction goes away, or is limited beginning next year.
  6. Delay income until 2018 (if possible)
    • Tax rates are lower for income earned after December 31, 2017.

WHAT DID NOT CHANGE:

  • Even though the new tax bill is being called an overhaul of the 1986 tax code, it has turned out to only be an amendment to the code, and a lot of tax items have not changed, or have become more advantageous.  The final bill has no changes to:
    • Student Loan Interest Deduction
    • Medical Expense Deduction (limits are lower for 2017 and 2018)
    • The Teacher Classroom Supply Credit
    • The Electric Vehicle Credit
    • Tuition Waiver for Graduate Students
    • Sale of your Home exclusion

There is a lot more in the new tax bill, and as we find out more we will be posting information on our website.

Mike