If you’re smart about the way you handle your taxes, you may want to make a few changes to reflect the new tax bill coming into effect next year. TaxAudit offers the following tips to consider before the year’s end.
Pay your 2017 state income tax in full before year-end. Pay your 2017 state income tax liability in full before the end of 2017 rather than waiting to pay any balance due in 2018. This may be particularly beneficial if you live in a state with high income taxes. The total itemized deduction for combined state and local income and property taxes will be capped at $10,000 for tax years beginning after December 31, 2017, and before January 1, 2026. Keep in mind that under the new bill an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year. And with other possible mathematical changes, a taxpayer may not benefit from itemizing in 2018 either.
Pay your 2017/2018 property taxes. If you live in a state that allows a property tax payment in the spring of 2018 for property taxes billed in 2017, paying and deducting the full amount of your current property tax bill in 2017 may provide a larger tax benefit if your tax rate goes down next year under the new legislation – and also if your combined state and local tax deduction exceeds the new limit of $10,000 next year. You may also receive a tax benefit if you currently itemize, but will claim the increased standard deduction for the 2018 tax year. Note that you must have a current bill in hand. Pre-payments for future years are not allowed.
Alternative Minimum Tax considerations. The current AMT may make your state and local income tax and property tax deductions less beneficial if you are subject to AMT. However, even if subject to AMT in 2017, you may benefit more by taking these deductions in 2017 rather than possibly losing those deductions entirely or in part in 2018.
Contribute to charities. It’s not too late to make contributions to your favorite charity – and consider making your 2018 charitable contributions this year if you believe your itemized deductions next year may not exceed the proposed new higher standard deduction. In addition, your tax benefit may be higher this year if your tax rate is lower next year. To qualify as a deduction, the funds must be given to a charity that is on the IRS’s list of eligible charities and you must itemize your deductions. Beginning in tax year 2018, cash contributions to IRS recognizable charities will be subject to a 60 percent AGI limitation rather than the current 50 percent.
Purchase the vehicle you’ve been planning to buy before December 31st. This could be advantageous for taxpayers in states with no state income taxes who itemize and claim the sales tax deduction. In some states, this purchase also provides a deduction on vehicle registration fees, which is another tax break that falls under the new bill’s $10,000 limitation for state and local income taxes.
Evaluate roth conversions. Evaluate any Roth IRA conversions you did this year to see if you need to recharacterize them. The option to “undo” (called recharacterize) a Roth conversion is eliminated after December 31, 2017.
Discuss 2018 unreimbursed job expenses with your employer ASAP. If you rely on the unreimbursed employee expense deduction, consider having a discussion with your employer about covering more of the expenses you incur that are necessary for performing your job and/or establishing an accountable plan for any such expenses. Miscellaneous itemized deductions, such as unreimbursed employee expenses, tax preparation fees, investment expenses, union dues, etc., are suspended for tax years beginning after December 31, 2017, and before January 1, 2026.
Sell poorly performing stocks if you’ve sold winners. If you’ve sold stocks at a gain this year, it’s not too late to sell under-performers to offset those gains. This is a popular strategy for reducing taxes, commonly referred to as “harvesting losses.”
Keep records for all virtual currency purchases and sales. It might sound strange, but the IRS classifies virtual currencies, such as Bitcoin, as property and not as currency. This means that the taxable amount is the difference between what you paid for it (your basis) and the amount you sold it for. Without evidence of your basis, the entire sales price is taxable.
Check on credits available to you if you’ve paid for college or school expenses. You’ll need orderly records to claim these credits and will receive form 1098-T from your child’s educational institution which is required when you file.
Maximize your contributions to retirement plans. Review your income and expenses to see if you can increase the amount you’ve contributed before the end of the year.
Dig into your pile of receipts early. You’ll need to meticulously document all expenses you plan to write off and if you start early, you’ll save time.