We interrupt your busy holiday season with a quick post on last week’s U.S. tax code overhaul. While the ink still dries on this sweeping new legislation, you may be wondering whether there are ways you can or should spring into action immediately, before year-end, to reposition yourself for the new law of the land.
First, we want to emphasize that the new rules are not retroactive. Your 2017 tax return – the one due this April – will still be prepared under pre-reform law.
Practically speaking, this means there is probably not a great deal you must do right away. If we’re aware of particular circumstances in your life that might warrant otherwise, we will be in touch with you directly to assist – if we haven’t been already. And of course we remain on call as always, to promptly assist with any questions or requests you may have at your end.
In the meantime, here is our general take on how to position your year-end tax planning choices.
Do you value your limited holiday season time with loved ones far more than the potential to shave off some future tax dollars owed? If so, even if you might forgo potential savings, you might prefer to opt out of making any special tax-planning moves at this time (beyond those you’d be doing anyway).
Would you rather ensure every tax-related dollar is spared, even if it takes a little extra immediate time to do so? If that’s the case, there are at least two areas you may want to consider right away: your charitable giving habits, and the timing of your taxable income.
First, let’s talk about your charitable giving. By design, most Americans are likely to fare better in 2018 by taking the higher standard deduction available under the new law instead of itemizing deductions on Schedule A. If it’s likely you will no longer submit a Schedule A next year, then charitable contributions will no longer help you reduce your taxes.
BUT, if you’ve been itemizing in years past – i.e., submitting a Schedule A – you’ll probably still itemize in 2017. Thus there may be benefits to making your 2018 charitable contributions before year-end, when they might still “pay off” for you and your recipients alike (subject to existing limitations). You can write those checks directly. Or, this might be a good time to consider funding a Donor Advised Fund, from which you can distribute donations in the future while taking the tax break today.
One other general consideration as we approach year end: Many Americans’ tax rates are expected to decrease next year. Thus, if there are reasonable (legal) ways to shift any reportable income into 2018, you may end up paying less tax on it.
As always with tax planning, there are a ton of caveats, catches and exceptions to these rules of thumb. If you are thinking of taking action before year-end, we hope you’ll be in touch, so we can discuss the details with you. Either way, we will no doubt be having much deeper discussions in 2018 about what the new tax law means to your tax planning, your personal wealth and your lifetime goals. We look forward to being here for you – today, tomorrow and throughout the years ahead.