2017 year end tax planning

[GrayHare]

The possibility of tax reform for 2018 increases tax planning challenges. Note rather than debating the reforms here I'm looking for tax planning ideas. While it sounds like many deductions might go away in tax year 2018, most believe charitable contributions will stay. If there are fewer deductions, it tells me charitable contributions become more valuable taxwise if made next year, so I am considering delaying contributions from 2017 by a couple months so as to bunch them in 2018.

Since ordinary income tax rates may drop a bit in 2018, delaying income into the next year makes sense, but that's generally a good idea even if those rates don't change.

What year end strategies are others considering?

 

[LOL!]

We just filed our 2016 taxes. We did a great job of tax planning I can say.
2016 was an itemized deduction year.

2017 is a standard deduction year, so not much planning needed for year-end.

2018 will be an itemized deduction year, so the main planning is not to make charitable contributions until January 2018 and not to pay property taxes until January 2018.

Otherwise, we use Thanksgiving holiday to make estimates of tax return for that year, so 2017 return will be looked at over that weekend. I will make sure we have done enough Roth conversions to get us to the top of the 15% marginal income tax bracket and/or plan on a recharacterization.

 

[Travelfreek]

2017 Tax Planning ...

So if they manage to pass it this year, my understanding is that it becomes retroactive to January 1st of 2017. If so, all the changes whether it be different deductions or different brackets will also apply to the income of 2017. So....I don't see where your charitable contributions should be pushed to 2018. If what I'm hearing on the networks is true, it's all going to happen for this year's income. The tough thing is once this is done, we will all have to act fast or just deal with the fallout. I may pull even more out of our IRA this year to pay down our house if they change the tax rate where we won't get caught in the 28% bracket. Right now, we are teetering into the 28% bracket. We can't do anything till this is all sorted out. Then the standard deduction should double also making it interesting as well. So, I'll be using some online tax calculators to figure this out come next month at this time if we have all the information by then.

 

[bingybear]

I wonder how the IRS is dealing with preparing instructions and forms while not knowing what the tax rules will be. Same with the tax software providers. The uncertainty should make this season interesting. For me it is quite simple. In December I get a pretty solid estimate on my divy and cap gains and then decide how much to roth convert. Maybe some day I'll look at the conversion horse race.

 

[Dash man]

So if they manage to pass it this year, my understanding is that it becomes retroactive to January 1st of 2017. If so, all the changes whether it be different deductions or different brackets will also apply to the income of 2017. So....I don't see where your charitable contributions should be pushed to 2018. If what I'm hearing on the networks is true, it's all going to happen for this year's income. The tough thing is once this is done, we will all have to act fast or just deal with the fallout. I may pull even more out of our IRA this year to pay down our house if they change the tax rate where we won't get caught in the 28% bracket. Right now, we are teetering into the 28% bracket. We can't do anything till this is all sorted out. Then the standard deduction should double also making it interesting as well. So, I'll be using some online tax calculators to figure this out come next month at this time if we have all the information by then.

It’s way too late to make tax changes retroactive to 2017. The IRS couldn’t handle it at this point.

 

[ziggy29]

When I had a large mortgage I used to pay 13 mortgage payments and two years of property taxes in one calendar year (and itemize), and in the next year I'd have 11 payments, no property tax payments, and use the standard deduction.

There are other sorts of things, too. Those receiving ACA premium assistance may look for ways to manage their MAGI. I am now comfortably in the 15% bracket so come December I sell as many long term capital gains in my taxable account as I can, then immediately repurchase the shares as long as the gain doesn't pull me out of the 15% bracket. I pay 0% tax on those gains, so I am basically getting a free step up in cost basis. It's sort of the opposite of tax loss harvesting.

 

[MichaelB]

It’s way too late to make tax changes retroactive to 2017. The IRS couldn’t handle it at this point.

+1

I will do my year end tax planning based on the current tax code.

 

[FIREd]

+1

I will do my year end tax planning based on the current tax code.

That's what I am doing as well.

 

[audreyh1]

The possibility of tax reform for 2018 increases tax planning challenges. Note rather than debating the reforms here I'm looking for tax planning ideas. While it sounds like many deductions might go away in tax year 2018, most believe charitable contributions will stay. If there are fewer deductions, it tells me charitable contributions become more valuable taxwise if made next year, so I am considering delaying contributions from 2017 by a couple months so as to bunch them in 2018.

Since ordinary income tax rates may drop a bit in 2018, delaying income into the next year makes sense, but that's generally a good idea even if those rates don't change.

What year end strategies are others considering?

Charitable contributions will have to exceed $12K to have any benefit beyond the standard deduction, so I'll probably be batching any future contributions to my Donor Advised Fund, since I supposedly won't be able to use other deductions to get over the standard deduction threshold.

Personally, I'm more concerned about the hit in Medicare rates if we exceed certain income thresholds in 2018, so I may realized some gains this year instead of next.

But ultimately, I am also planning based on the current tax code.

But I am taking all my deductions this year, which makes sense since we made a large charitable contribution. But it's also in case those other deductions disappear.

 

[audreyh1]

So if they manage to pass it this year, my understanding is that it becomes retroactive to January 1st of 2017. If so, all the changes whether it be different deductions or different brackets will also apply to the income of 2017. So....I don't see where your charitable contributions should be pushed to 2018. If what I'm hearing on the networks is true, it's all going to happen for this year's income. The tough thing is once this is done, we will all have to act fast or just deal with the fallout. I may pull even more out of our IRA this year to pay down our house if they change the tax rate where we won't get caught in the 28% bracket. Right now, we are teetering into the 28% bracket. We can't do anything till this is all sorted out. Then the standard deduction should double also making it interesting as well. So, I'll be using some online tax calculators to figure this out come next month at this time if we have all the information by then.

No, I don't think so. Tax changes usually apply to the next year, not the current one, and certainly not this late in the game (Q4) where it would create chaos. Most discussions I've seen assume the changes are for 2018.

For example, in 2012 we knew the big changes coming in 2013. It wasn't retroactive to the beginning of 2012.

I remember one of Bush's capital gains tax drops was implemented early in the year, but it was not retroactive to the beginning of the year. Instead, you paid one capital gains rate on investments sold before the date the law was signed, and the lower rate on investments sold after.

 

[scrabbler1]

I also do some bunching of my itemized deductions, as long as my medical expenses don't spike. They had a big spike in 2015 when I was in the hospital, and had a smaller spike last year when I had some smaller, unforeseen expenses. This year that has not happened, so when I make my 4th quarter estimated state income tax payment in January 2018 instead of December 2017 (and pay the 4th quarter 2018 taxes in December 2018), I will be able to take the standard deduction in 2017 and itemize in 2018.


As extra, if unusual benefit to me by taking the standard deduction is that I don't have to count as income any state property tax rebate I get the year after I don't itemize. This matters because that income counts toward MAGI and reduces my ACA subsidy. It's rather unfair for this negative deduction to count as income for MAGI purposes instead of being an offset to a deduction and not count as income.

 

[scrabbler1]

No, I don't think so. Tax changes usually apply to the next year, not the current one, and certainly not this late in the game (Q4) where it would create chaos. Most discussions I've seen assume the changes are for 2018.

For example, in 2012 we knew the big changes coming in 2013. It wasn't retroactive to the beginning of 2012.

I remember one of Bush's capital gains tax drops was implemented early in the year, but it was not retroactive to the beginning of the year. Instead, you paid one capital gains rate on investments sold before the date the law was signed, and the lower rate on investments sold after.

Not sure if you mean the 1997 cap gains tax cut which Clinton signed. There was a cutoff day in May to distinguish cap gains taxed at the lower or higher rate.

 

[audreyh1]

Not sure if you mean the 1997 cap gains tax cut which Clinton signed. There was a cutoff day in May to distinguish cap gains taxed at the lower or higher rate.

Oh - yeah maybe that was it. I was thinking it was May. Was that when the rate went from 28% to 20%?

That didn't affect me as I never paid a 28% capital gains tax rate. So I think there was another one under GW Bush. From 20% to 18%, or the 18% to 15% change.

Yep - under Bush in May of 2003 capital gains rate dropped form 18% to 15%. If you had sold before a certain date you paid the higher rate.

 

[braumeister]

My only comment is that I'm surprised that anyone thinks they can predict what will finally emerge from the free-for-all our Congresscritters will be engaged in over tax law changes. And to be concerned about making specific plans now is taking it even a step farther. You all are way more confident than I am.

 

[GrayHare]

I also do some bunching of my itemized deductions, as long as my medical expenses don't spike. They had a big spike in 2015 when I was in the hospital, and had a smaller spike last year when I had some smaller, unforeseen expenses. This year that has not happened, so when I make my 4th quarter estimated state income tax payment in January 2018 instead of December 2017 (and pay the 4th quarter 2018 taxes in December 2018), I will be able to take the standard deduction in 2017 and itemize in 2018.

I'm being wary of pushing those into 2018 since SALT are a prime target for becoming non-deductible by then.

 

[pb4uski]

My only comment is that I'm surprised that anyone thinks they can predict what will finally emerge from the free-for-all our Congresscritters will be engaged in over tax law changes. And to be concerned about making specific plans now is taking it even a step farther. You all are way more confident than I am.

+1 They haven't accomplished much of anything all year... why would we think that they could pass something as compcated as tax reform in 3 months?

 

[Senator]

I bought a new truck, so I am considering writing off more on a Section 179 depreciation. I have an IRA I want to convert, ~$60K, if I take a larger deduction I can convert the whole thing in 2017.

 

[SecondCor521]

I think it highly uncertain what will actually happen (and when the effective dates are for any of it). But given how much in taxes people pay and how happy or not they are to paying them, I can understand why people try to guess anyway.

My plan is pretty well set. I have not seen anything in the proposed changes that would influence my plan at all.

I plan to do a Roth conversion of $xxK before the end of the year. Early next year, I'll recharacterize whatever I need to get my AGI to $24,999. This plus some other criteria should qualify us for an auto-zero EFC when my son goes to college in two years. Between the financial aid effect and all the other tax credits (ACA, EITC maybe, retirement savers credit), the effective marginal rate gets quite high quite soon.

 

[jazz4cash]

+1 They haven't accomplished much of anything all year... why would we think that they could pass something as compcated as tax reform in 3 months?

+2

 

[Sunset]

I just started today, listing out in a spreadsheet our capital gains, interest, divs, pension, self employment, rental income numbers so I can make an educated guess as to how much to pull from IRA to hit the top of the 15% bracket.

Otherwise I'm planning the same as always, because I have no clue as to what will be passed into law.

 

[Texas Proud]

From what I remember, the tax changes can be back dated to when legislation was submitted.... now, that may be tax increases, but they have been implemented on dates prior to them being signed...

As for increasing donations, unless you plan to do a lot then it might not be worth it... they say the standard deductions will double... if that is true then I will never itemize again.... right now I have to double up to get it every other year...

 

[imokurok]

Charitable contributions will have to exceed $12K to have any benefit beyond the standard deduction, so I'll probably be batching any future contributions to my Donor Advised Fund, since I supposedly won't be able to use other deductions to get over the standard deduction threshold.

Personally, I'm more concerned about the hit in Medicare rates if we exceed certain income thresholds in 2018, so I may realized some gains this year instead of next.

But ultimately, I am also planning based on the current tax code.

But I am taking all my deductions this year, which makes sense since we made a large charitable contribution. But it's also in case those other deductions disappear.

+1

 

[target2019]

My only comment is that I'm surprised that anyone thinks they can predict what will finally emerge from the free-for-all our Congresscritters will be engaged in over tax law changes. And to be concerned about making specific plans now is taking it even a step farther. You all are way more confident than I am.

That was my initial thought when I first read the OP.

 

[jebmke]

Charitable contributions will have to exceed $12K to have any benefit beyond the standard deduction, so I'll probably be batching any future contributions to my Donor Advised Fund, since I supposedly won't be able to use other deductions to get over the standard deduction threshold.

Personally, I'm more concerned about the hit in Medicare rates if we exceed certain income thresholds in 2018, so I may realized some gains this year instead of next.

But ultimately, I am also planning based on the current tax code.

But I am taking all my deductions this year, which makes sense since we made a large charitable contribution. But it's also in case those other deductions disappear.

I am more concerned that Medicare becomes non-viable. Both 2018 budgets reduce Medicare by $.5 Trillion. That will accelerate the current trend of providers dropping Medicare. I sign up for Medicare starting in January but my long term financial plan still assumes it is either gone or from an economic standpoint, we end up paying as if it were gone. As for the tax code, I doubt it will be retroactive. Finally, the $12K threshold is a bit of a red herring. While the standard deduction does increase to $12,000, personal exemptions go away. Today, a single taxpayer has $4,050 exemption + $6,300 std deduction (Single, under 65). That totals $12,350. Increasing the deduction to $12,000 actually is more or less breakeven

 

[donheff]

I'm adding a +3 to the skeptics. The proposals appear geared almost surgically to polarize the Hill and even split the authors' party to some degree. Anything that stands a chance to be passed will undoubtedly be substantially changed from the current proposals.