Year-End Tax Planning Moves for Individuals

Tax reform has been a major topic of discussion in Washington, but it’s still unclear exactly what such legislation will include and whether it will be signed into law this year. What does this mean for you and your tax strategies? In your 2017 planning, you’ll need to follow current tax law, keeping an eye on what could happen in the future and be ready to act quickly if changes occur. Below are several tax planning strategies to consider:

  • Postpone income until 2018 and accelerate deductions into 2017 to lower your 2017 tax bill. This strategy may be especially valuable if Congress succeeds in lowering tax rates next year in exchange for slimmed-down deductions.
  • It may be advantageous to try to arrange with your employer to defer, until early 2018, a bonus that may be in the works. This could cut your 2017 tax as well as defer your tax if Congress reduces tax rates beginning in 2018.
  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so will increase your 2017 deductions even if you don’t pay your credit card bill until after the end of the year.
  • If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2017. Also keep in mind that the state and local tax deduction wouldn’t be available next year under the tax reform plan currently before Congress.
  • Consider bunching large medical expenses this year. You could postpone or accelerate some elective treatment to group most of those deductible expenses in one year so that you exceed the 10% of adjusted gross income threshold.
  • Consider disposing of a passive activity in 2017 if doing so will allow you to deduct suspended passive activity losses.
  • If you become eligible in December of 2017 to make health savings account (HSA) contributions, you can make a full year’s worth of deductible HSA contributions for 2017.
  • Take required minimum distributions (RMDs) from your IRA or 401(k) plan. RMDs from IRAs must begin by April 1 of the year following the year you reach age 70-½. That start date also applies to company plans, but non-5% company owners who continue working may defer RMDs until April 1 following the year they retire. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn.
  • if you are over age 59 1/2 and your tax rate is low this year, consider taking a taxable distribution from your retirement plan even if it is not required, or consider a Roth IRA conversion.
  • If you are at least age 70½ and have a traditional IRA, you may be able to contribute your minimum required distributions from the IRA to a charity (up to $100,000) without having to pay tax on the amount transferred to the charity.
  • Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. The exclusion applies to gifts of up to $14,000 ($28,000 if married) made in 2017 to each individual.
  • You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year.
  • If you were affected by Hurricane Harvey, Irma, or Maria, keep in mind that you may be entitled to special tax relief under recently passed legislation, such as relaxed casualty loss rules and eased access to your retirement funds. In addition, qualifying charitable contributions related to relief efforts in the Hurricane Harvey, Irma, or Maria disaster areas aren’t subject to the usual charitable deduction limitations.

There are, of course, many additional strategies to consider. Please contact Wouch, Maloney & Co., LLP so that we can advise you on which tax-saving moves to make or for assistance with any other tax or other financial issues.