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5 Tax Planning Steps to take before the Law Changes on January 1st

tax law changes 2018

The largest re-write of the federal tax code in 25 years is likely to be enacted into law within days, leaving only a week to understand a 500 page piece of legislation and then act before the changes hit on January 1st, 2018.  What we’ve come to understand from analyzing the competing bills passed by the house and the Senate, which are now being reconciled into a single bill for passage and presidential signature, is that there are several steps most taxpayers can take today to save hundreds or even thousands of dollars.  Most of these steps are easy and very valuable today, but will we worthless after the calendar flips to 2018. So we’ll give you 5 Tax Planning Steps to take before the Law Changes on January 1st, so you can get ahead this year.

Pay Your 4th Quarter State Estimated Tax Payment Before December 31st

The final estimated tax payment for the year is not due until January 15th.  But most taxpayers will benefit by making this final state tax payment before the end of the year. Then they can take a deduction on their federal income tax return for that payment in 2017, rather than in 2018.  State income tax payments are deductible under current law, but will likely not be deductible, or will be severely limited, in 2018.  All you need to do in order to ensure the deduction in 2017 is write the check, put a December 2017 date on it, and drop it in the mail on or before December 31st.

Clean Out the Garage and the Attic… And Head to Goodwill Before New Year’s Eve

Charitable donations are not going away under the new tax law, but by doubling the standard deduction, the new law will negate the tax benefit of charitable donations for many taxpayers.  Unless you are taking the standard deduction this year, there is really no downside to accelerating all types of charitable donations into this tax year.  So if you are typically extra charitable every January to meet a new year’s resolution, do yourself a favor and do those things in December instead.

Make Your January Mortgage Payment Now

By paying your January mortgage payment in December (not a principal pay down but an early payment), you will move the mortgage interest deduction for that payment into the current calendar year.  For some, this deduction will help in 2017 but wouldn’t help in 2018 because of the large increase in the standard deduction under the new law.   Look at your 2016 income tax return, if the number on line 40 of your Form 1040 is less than $25,000, then this trick, as well as the others listed in this post, would likely be very wise for you.

Pay Your April Property Tax Bill Before the End of This Year

Building on the previous 3 tips, shifting your property tax deduction into 2017 may give you a sizable tax savings that will not exist if you make the payment in 2018.  Especially if you have total annual property taxes over $10,000 and you are not currently subject to alternative minimum tax.  If you pay your property taxes as part of your mortgage payment via an impound account, you may want to call your mortgage service company to discuss how to do this without messing up your impound account.

If You Own A Business, or If You’re Self-Employed, Burn Up Your Credit Card Before Year-End

Tax rates are dropping so any expense that you deduct in 2017 will likely be more valuable than the same deduction if taken in 2018.  This is especially true if you operate as a partnership or a corporation.

  • If you use cash based accounting rather than accrual based, then pay the January rent and health insurance for your business in December.
  • Buy any equipment or computers that you’ll need in the next year now.
  • If you need a company vehicle, consider heading to the dealership this month. Load up on expensive supplies and anything else you’ll need soon.
  • If a customer owes you a large payment, skip the collection call until next month so you can shift that income into 2018. I would tell you to hold all deposits until next year, but because of the IRS doctrine of constructive receipt, that technically wouldn’t benefit you under the letter of the law.

These tips are quick and may save you thousands of dollars if you act quickly, but everyone’s tax situation will be impacted differently by this new law.  Call us with questions on how these tips can affect your taxes, how the new tax law change will apply to you, or to discuss your specific tax situation.

Written by Jeff Johnson

Jeff Johnson has been helping individual and small business clients with tax and financial planning for over 15 years. Starting with a degree in finance from the University of North Dakota, Jeff has continually increased his financial education. He currently holds the industry designations of Enrolled Agent (EA) and Certified Financial Planner (CFP®). In addition, he holds a life and health insurance license from the state of California. Jeff is a member of the California Society of Enrolled agents and the Financial Planning Association.

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