Pending Tax Law Changes for 2018 makes 2017’s Year-end Planning More Important
We are once again knee-deep in the holiday season and the pace of our lives is ever quickening!!! Overwhelmed is, or already has become, the accepted condition for most of us. I certainly don’t want to add to it, but I thought I would offer just a few timely and pertinent tax planning suggestions that could have a real positive impact on your 2017 tax liability.
First: Charitable Contributions. Yes, cash contributions are often made this time of year, but if you have some time before the 31st to clean out some closets, your garage, or your basement, you can reap the reward on your tax return. By donating these items to a qualified charity and receiving documentation of an itemized receipt, this could put dollars back in your pocket if you qualify to itemize on Schedule A. With the possibility of losing the Personal Exemption and raising the Standard Deduction in 2018, many may not be eligible to itemize as they currently are and the benefit of charitable contributions may not have the same impact.
Second: Roth Conversions. If you believe your tax rate will increase next year you can convert a Traditional IRA, in whole or in part, to a Roth IRA. This is a taxable event and you’ll have to pay taxes on any pretax contributions and earnings from the Traditional IRA. However, as long as the Roth is in existence for 5 years and you are 59 1/2, the withdrawals will be tax-free. There is the possibility that Re-characterization may be not be an option in the proposed tax legislation.
Third: Increase contributions. Are you getting a bonus? Can this be deferred? Time is tight and maybe impossible for adding funds to your employer sponsored retirement plans such as, 401(k), 403(b), 457, etc. However, some companies may still let you do this. The maximum contribution for 2017 is $18,000 if under age 50, $24,000 if older. These pre-tax contributions will reduce your gross income for the year.
Do you have children or grandchildren that you want to put money into a 529 Plan for post-high school education? For some 529 Plans, you may get a State tax deduction for contributions into these plans. Ohio’s 529 Plan has this benefit. There is also the possibility that the pending tax bill with expand the use of funds in 529 plans moving into 2018, which may make this type of college savings plan even more attractive.
Fourth: Review your itemized deductions. In particular the property tax you pay. The proposed tax legislation either eliminates or caps the amount you are able to deduct related to property taxes and state/city tax paid during the year. So, you may want to pay as much as you can before year-end.
Fifth: Spend down your Flexible Spending Account (FSA). This is a use it or lose it type of medical spending account. The IRS has a list of qualified medical expenses on page 16 of Publication 969, https://www.irs.gov/pub/irs-pdf/p969.pdf.
Taking a few minutes to review your personal situation and determining if some of this strategies work for you could be time well spent! Deep breathing also helps.