This is an Important Year for Tax Planning

The traditional rules of postponing income and accelerating expenses could be even more important for some taxpayers than in previous years.

President elect Trump has proposed lowering the top tax rate from 39.6% to 33% and replacing the current brackets which range from 10 percent to 39.6 percent, with three brackets of 12 percent, 25 percent and 33 percent.

A couple of other proposed changes are:

Replace the current personal exemption and standard deduction with a new standard deduction of $30,000 for married filers and $15,000 for single filers.

Repeal the Net Investment Income Tax, which is an additional 2.3 percent tax on net investment income.

A new deduction for child care costs, up to an amount equal to the average cost of care in your state, allow a tax credit of up to $1,200 for child care expenses to lower-income families and create new savings accounts for care of children or elderly parents. Currently there is a credit for child care expenses.

Reduce the top tax rate on corporations to 15%.

At this point it is impossible to tell exactly what is coming but it is pretty certain there will be major changes .

So with that in mind here are a bakers dozen of tax planning tips

  1. Take full advantage of 401K plans and IRA deductions.
  2. Donate to charity before the year end if you will itemize deductions. Contributions paid by credit card before year end are deductible even before you have paid the credit card bill.
  3. Donate non cash goods before year end. If the total is over $500 special reporting requirements are required (Form 8283).
  4. If you are making state estimated payments consider paying next year’s January payment at the end of the current year.
  5. Accelerate payment of other itemized deductions.
    1. If a property tax payment is not due until early next year consider paying before year end.
    2. If you have high medical and dental expenses pay any bills before the end of the year. This only applies if your total medical expenses will be more than 10% of your total income.
  6. If you have capital gains consider selling stocks that have lost money to offset these gains.
  7. Defer income if possible into the next year if possible.
  8. Accelerate business deductions if you have net income.
  9. Pay college tuition before year end if you have not reached the maximum allowed for deductions and credits.
  10. Make sure you have taken any required minimum distributions (RMDs) from retirement plans if you are over 70 ½. The penalty is onerous.
  11. Watch out for the Alternative Minimum Tax (AMT) because some deductions (for example property taxes) can increase AMT and end up not helping you.
  12. If you have a gifting strategy make sure all gifts are made before the year end. An individual can gift $14,000 tax free to each recipient.
  13. This year more than ever Consult Your Tax Professional. Many of these strategies can be complicated.
    1. Selling losing stocks may not be a good strategy depending upon numerous other factors. Some of these factors are your capital gains tax rate, expectations for the stock in the future , etc.
    2. If you expect to earn less the next year accelerating deductions and postponing income may not save you money depending upon your tax bracket and more.
    3. See number 9. Depending upon your income you may not qualify for education credits or deductions.
    4. See number 11. The Alternative Minimum Tax is a very tricky subject to say the least. According to proposals the AMT may be repealed.

Leave a Reply

Your email address will not be published. Required fields are marked *

For security, use of Google's reCAPTCHA service is required which is subject to the Google Privacy Policy and Terms of Use.

If you agree to these terms, please click here.