The tax rates are going down next year, so a deduction now is worth a lot more than it will be in 2018. On top of that, several popular deductions are disappearing next year or getting substantially limited. But if you act now, you can get the tax savings you had hoped to take in 2018 for your 2017 return.
While the new tax bill affects everyone in America, the 44 million households (about a third of all tax filers) who itemize their deductions on the Schedule A form have the most to gain by spending a few hours before the end of the year optimizing their taxes.
Here are five steps to consider doing before Jan. 1 to maximize your tax savings.
1. Give more to charity in 2017.
Have you been meaning to donate a couch to the Salvation Army or Goodwill?
Do you feel it’s about time to give a little more to your religious institution or alma mater?
If so, get it done by year’s end. It helps reduce your income this year when tax rates are higher.
Plus, you might not end up itemizing next year since the standard deduction is nearly doubling. If you take the standard deduction in 2018, you won’t get any tax savings from your charitable
2. Try to prepay your 2018 property taxes.
If you own a home, you are familiar with property taxes.
At the moment, you can deduct your local property taxes from your federal income tax bill, but starting Jan. 1, there’s a $10,000 limit on all of your state and local taxes, including property taxes. Many people are rushing to try to prepay their 2018 bill now so they can take that extra deduction before
the rules changes.
It’s a tax trick that will only work for this year, but it’s worth trying. Check with your county to see whether you can prepay and make sure you either pay online or take a check to the office in person. Mailing it might not get it there in time to get it processed in 2017.
To make this easier, there’s a quick online form you fill out right on the Office of Tax and Revenue website.
There are two catches:
First, if you prepay your 2018 property taxes, you might be giving up any right to contest your property valuation.
Second, if you owe the Alternative Minimum Tax (AMT) in 2017, then prepaying your property taxes probably won’t help you because the AMT requires you to add back all of your state and local taxes and recalculate your tax bill, so the benefit of prepaying goes away. Ask your accountant or run your favorite tax calculator to check and see if prepaying is likely to save you any money.
You can also try to prepay your state income taxes. The Republican tax bill tried to prevent this, but the legislation is worded in a way that is nebulous, some attorneys say. It appears the tax bill writers made a technical mistake, and it’s unclear whether they will correct it.
The worst that can happen is the IRS rules you can’t take the extra deduction after all. People who typically pay their state income taxes quarterly can easily pay the January installment now,
3. Make your business expenses now
If you pay union dues or a professional society membership fee (ex. Chamber of Commerce or Bar Association) or buy a lot of supplies for your job that you normally deduct on your taxes, you’ll want to buy everything you can by year’s end.
At the moment, people who are classified as employees can deduct a lot of their unreimbursed business expenses on their taxes if the total is more than 2 percent of your adjusted income. But that deduction is going away entirely in 2018.
4. Max out as many other deductions as you can
The general rule of thumb is: Try to take the credit or deduction in 2017. For example, teachers can get up to a $250 credit for buying supplies for their students. That’s not going away, but it’s still more valuable in 2017 than next year.
Another tactic is to try to prepay your home-equity loan interest. That deduction goes away next year, so it’s worth calling your bank and seeing if you can prepay at least some of the interest so you can get the tax savings in 2017.
One other deduction that’s going away in 2018 is for tax preparation services. Ask your accountant now for the invoice they would normally give you in April after they file your tax return. If you can pay it now, you can still deduct it.
5. Delay income until 2018
It’s also a good idea to try to delay income until January when the tax rates are lower, especially if you are a small-business owner. So if you are chasing up some customers or clients to pay the bill you sent them awhile ago, you might want to wait until January to really get aggressive on collecting. In addition to lower tax rates, small business owners get a generous benefit starting next year of being able to deduct 20 percent of their business income tax-free.
All of this sounds like a lot to do at a time of the year when you just want to relax with family, however, just an hour or two of work could save hundreds, if not thousands, of dollars on your taxes.
Finally, there are quite a few tax items you don’t need to stress about. Republicans considered a lot more changes to the tax code that would have affected the middle class. But in the final bill that President Trump signed, there are no changes to the student loan interest deduction, the extraordinary medical expense deduction, the teacher classroom supply credit, the electric vehicle credit, the tuition waiver for
graduate students and the capital gains rules on selling your home.
If you are considering getting a divorce, you have one more year to do it and be grandfathered in under the current rules where the person paying alimony can deduct the amount on his or her taxes. The alimony deduction doesn’t go away until Jan. 1, 2019.
Moving Forward: Act Now
At Boxelder Consulting, we encourage you to act now on as many of these steps as possible. These are some things you can do before January 1st that can greatly reduce the tax burden on you and your family.
Taxes can be extremely stressful, and we completely understand this. The Tax Attorneys and Licensed Professionals at Boxelder Consulting are here to help you no matter what, and will always have your back. Contact us today, or give us a call at (888)-573–5775 to start taking action now.
Original Article: https://www.washingtonpost.com/news/wonk/wp/2017/12/22/5-things-to-do-before-jan-1-to-lower-your-tax-bill/
By Heather Long of The Washington Post
Published Dec 22, 2017