The tax code is undergoing some major changes next year. I’m no tax expert, but perhaps some of my readers are? I’d love to hear you thoughts in the comments!
Many people who currently itemize their expenses will be taking a standard deduction next year as the there are new limits on local tax deductions and the standard deduction for those couples who don’t itemize will jump from $12,700 to $24,000.
Some good strategies include:
- Make additional charity payments in 2017. This definitely makes sense if you won’t itemize next year, but will also make sense if you expect your marginal tax rate to go down next year. It can also help to move other itemized deductions to 2017 if possible.
- Pay property and local income taxes. There will be a limit of $10,000 in deductions for state and local income/property taxes next year. You can’t prepay local income taxes, but you can make estimated payments for current liabilities. You can pay 2018 property taxes if they’ve been assessed, though there’s a lot of confusion about what exactly you can or can’t deduct, so you’ll want to speak to an accountant about that.
- 529 plans are currently intended for post-high school education, but will work for private K-12 schools starting next year. However the changes remain murky. Many states allow you to deduct 529 contributions from your local income taxes. The growth of the plan is also deductible from federal income taxes. Will you be able to put money into a 529 and immediately pay your K-12 tuition bill with that money to save on local taxes? Add that to the list of items to discuss with your accountant.
Again, I’m not a tax professional and you should check with your accountant before making any financial decisions.
What tax strategies will you take advantage of before 2018?
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49 Comments On "What Are Your Tax Strategies For The End Of The Year?"
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Make an extra mortgage payment,
How does that help? It’s mortgage interest that’s deductible not the mortgage itself?
it helps – pay your Jan payment now.. part of which is interest.
this won’t get eaten by AmT if you fall into that.. its a great move!
I normally itemize but next year I won’t since the standard deduction is doubled. I’ll take the extra interest payment on this year’s deduction.
Sorry to bust up the party on this, but legally this would not work. See the quote below from IRS Publication 936.
“Prepaid interest. If you pay interest in ad- vance for a period that goes beyond the end of the tax year, you must spread this interest over the tax years to which it applies. You can deduct in each year only the interest that qualifies as home mortgage interest for that year.”
I put in 10k for 529 which I hope to take out quickly in 2018 to pay tuition.
A person posted it on Dansdeals Twitter or Facebook so I asked CPA.
CPA said good idea to do it. He did not tell me about it.. .
It is cheap/easy to setup the 529 here:
https://www.nysaves.org/
Awesome!
There is no real point to this on a federal level as the tax advantage is earnings grow tax free
Talking about on a local level.
Depends on the state. I think in Ohio you can only deduct up to $2k in contributions
Correct, though it goes to $4K next year.
in NY (and lot of NJ live in NY).. it save a couple hunderd bucks (i didn’t check if there is a min hold). but you need toh have 10K lying around – they don’t take miles 🙂
Correct for Ohio. You can contribute any amount and roll over to future state deductions. No help for your federal taxes.
According to my CPA 2017 529 is only good for college tuition as new law takes effect 1/1/18. Am I missing something here?
You can contribute now and disperse to schools on 1/1/18.
It is unclear whether using money in a 529 plan for K-12 will “blow” the state deduction. In other words, the state laws are not yet tracking the federal laws. I reached out to a NY State sponsored 529 plan for clarification and they responded that they are looking into the issue but cannot yet provide an answer.
paid january’s mortgage and escrow today!
Call your bank and make sure they make the payment today.
That doesn’t mean you prepaid real estate taxes. You’d need to go to your local county website and pay there.
more interested in the interest deduction…property taxes up in the air.
Paid general and School taxes – got a 1% discount (woopee!) but more importantly bring down my taxes for this year
Will making an extra mortgage payment help?
You left out the link to the DDF discussion 🙂
There were too many threads 😉
Sold a stock w a loss today. Make sure not to repurchase same stock without 31 calendar days though.
The three letters of truth AMT, Emet. Prepaying property taxes won’t make any difference.
If you do prepay State Income Tax in 2017 for 2017 and you overpay you will reduce your federal taxes for 2017, however in 2018 it will count as a gain.
Defer income. If at all possible, if you have any income coming to you in the next few days, defer it to 1/1 or after.
Opened up a charity fund with the Jewish Communal Fund and gifted them non-retirement mutual funds (gives me the option to actually give the charity where I want next year and also go tax free on the gains).
Also prepaid property taxes (they only allowed Town not school which was disappointing).
Also made sure to estimate (and certainly not under estimate) my state and local taxes and paid it.
The 529 idea sounds interesting; will look into it.
give huge charity deductions (next 3 year’s worth) this year. take standard deduction next couple years.
If you will not itemize in future years but do this year- Set up a donor advised fund for all the money you have available for future charitable donations. Donate a lump sum now which can be invested and take the write off this year. Then direct the fund to dispurse over the next few years including any gains on the donation
Paid 2018 1st Qrtr Property tax online with CC that needed to meet spending threshold. $79 but get 2% CB.
Sponsor a post-fast DO and write it off
It kills me to see the tax illiterates talk about the “standard deduction JUMPING to…”
It’s hardly jumping at all because the personal exemptions are gone. For a married person with no children, especially if you’re in a high tax state, ain’t nothin’ “jumping” but your tax bill.
Emperor’s new clothes redux: 3% reduction in our bracket saves us a bit over $1000. Losing personal exemptions adds nearly $1800 to our taxes.
I just love that “fiscal conservatives” are adding $1.5 trillion to the deficit so that most of the citizens will be paying more in taxes.
Why ignore the child tax credit?
Not saying this is all roses as its clearly not, but that does help things for many married couples.
State income taxes… What are those??
Sorry, couldn’t resist 🙂
“Will you be able to put money into a 529 and immediately pay your K-12 tuition bill with that money to save on local taxes?”
I was actually going to open and Fund on Friday and take out in 2018, put in in 2018, take out in 2019, etc etc but I saw the following on Page 17 of the NY IT-201 Instructions:
https://www.tax.ny.gov/pdf/current_forms/it/it201i.pdf
1 Total current and prior years’ nonqualified
withdrawals from your account(s)………………… 1
2 Total current and prior years’ contributions
to your account(s)……………………………………… 2
3 Total current year’s subtraction modification
(from line 1 of Worksheet for line 30) and prior
years’ subtraction modifications*…………………. 3
4 Subtract line 3 from line 2…………………………… 4
5 Total prior years’ addition modifications* ………. 5
6 Add lines 4 and 5………………………………………. 6
7 Subtract line 6 from line 1. This is your
current year addition modification. Enter this
amount on Form IT-201, line 22 ………………….. 7
If line 7 is 0 (zero) or less, there is no entry required on
Form IT-201, line 22.
* Be sure to include all prior years’ addition and subtraction
modifications.
Effectively what this Worksheet is doing is making you add back the distribution every year to recapture the deduction. Unless its a “qualified withdrawal”. The default right now is that elementary and high school tuition is non-Qualified. NYS would have to proactively change their law to mirror the new law.
In effect no deduction in NYS & NJ has no deduction for 529. Not sure about other States and the recapture law.
Unless you have money to spare, invest for awhile,and make significant gains to make it worthwhile then not much here.
Now if the Orin Hatch Charitable deduction for up to 25% of Tuition to private schools would have been kept in the bill that would have been something to be happy about!
Alas, a big X was marked on it
Will NY and other states have to conform to federal 529 law for it to cover K-12 starting on 1/1 or can states opt out?
Look into a Donor advised fund from a place like the Jewish Federation… put some highly appreciated stocks from a taxable account into a fund and reap the tax benefits of the donation now and donate for the future while letting the money grow some.
Too late to transfer anything to get a 2017 deduction. Jewish Communal Fund has the ability to receive credit card donations on its website. You can open a fund and use their credit card page to make a contributions (some cc fees apply). Another way is to make a donation through PayPal Giving Fund to Jewish Communal Fund. PayPal would take care of the cc fees so you get the full amount you donate. It will take about a month for PayPal to actually make the money available but you will have a 2017 deduction if making the contribution by Dec 31 (PayPal Giving Fund is a charity itself) and can use the funds anytime thereafter.
If I am in AMT does it make sense to make extra mtg payment and interest tomorrow?
Would gain from it as interest is still deductible
Even though I am amt now
Usually not as you get no benefit from itemizing since the AMT will recapture. Ask your accountant.
10k max for state city And mortgage interest combined?
Or 10 and 10
Total of 20?
Yes exemptions gone is no good
No limit on dollar amount of interest deduction. Just lowered mortgage indebtedness eligible to deduct interest for new purchases to 750k.
If you r in the AMT prepaying property taxes will not help you
Open a Fidelity giving account today. Deduct once u fund it. Ie 2017. Make checks out from Fidelity to charities in 2018 and beyond