With the new tax reform bill signed, sealed and delivered just before the holidays, there are a few things you may want to take quick action on before Dec. 31 to maximize your tax benefits.
While there is not a one-size-fits-all tax strategy, a few commonalities exist that may be advantageous to your year-end tax planning. Here’s a look at three different steps you could consider taking before the new year.
1. Think about prepaying your property taxes.
Starting in 2018, the Tax Cuts and Jobs Act puts a cap on the amount of state and local taxes you can deduct. That includes state and local income, sales and property taxes. For single and joint filers, the limit is $10,000.
If you believe your state and local taxes will be greater than the $10,000 cap next year, pre-paying your 2018 property taxes before Dec. 31 is a way to offset the potential loss of the deduction. That strategy is particularly advantageous for taxpayers who typically have high property tax bills and other large annual deductions, such as mortgage interest and retirement contributions.
But, if you aren’t sure where your tax totals will fall, take the time to map out a projection based on your prior year outcomes to see if this strategy makes the most sense for you. If your property taxes are paid through an escrow account, contact your servicer to understand your options.
2. Consider postponing or accelerating your income.
This strategy is most beneficial for taxpayers who have control over when they receive their earnings. Since the individual tax rates are set to shift lower in 2018, income taxes will generally be less on the same amount of money compared to 2017.
If you are self-employed as a freelancer or independent contractor, you could consider delaying your income by waiting to send invoices to your clients until Jan. 2018. The goal being to pay less income tax on that money.
The opposite may be better, however, if you have a larger family. The Tax Cuts and Jobs Act eliminates the existing $4,050 personal and dependent exemption, which means you can no longer use that to reduce your taxable income. In that case, you may want to move as many future payments as you can into 2017 so you can put your exemptions to good use and potentially pay less tax.
3. Contemplate increasing your charitable contributions.
Charitable contributions are a favorite deduction for many taxpayers to itemize on their tax returns. But, with the tax reform bill’s increase in the standard deduction, there’s a chance you won’t itemize your deductions on your return next year. That prevents you from claiming a deduction for any charitable donations in 2018.
For that reason, you could increase your contributions this year to cover what you’d contribute next year and reap more tax benefits. Whether you write a check to your favorite local organization or choose to drop off boxes of unused clothing and household items to Salvation Army, doing so before the end of the year could be a great way to capitalize your tax opportunities.
Support through the tax reform bill changes
Regardless of how the tax reform bill impacts your situation, TaxAct is available to help you navigate the changes. Each of our products will be updated with the latest tax law information to ensure you have the tools to maximize your tax outcome and file your return with confidence. Our TaxWatch feature within each product is also available to help you identify tax planning opportunities based on your situation and will be reflective of all changes implemented by the tax reform bill.
As your trusted tax software partner 365-days a year, we’re here to help you make the right tax decisions and capture the most tax savings.