Why do we think early tax planning is appropriate this year? Many people wonder " how will Trump's tax plan affect me?". (Read my post on Trump reform plan). One of the biggest changes for individual tax is itemized deductions. Under the proposal, standard deduction will increase while most of the itemized deductions will be eliminated or significantly limited.This could be a big hit for many taxpayers, especially people living in California, New York. People in San francisco bay area most likely pay significant amount of state income taxes, property taxes and high mortgage interest. State and local taxes deduction will be completed eliminated and property tax and mortgage interest will be limited. In an other words, for many people, some items deductible in 2017 might not be deductible in 2018 if the bill passes.
With the prospect of major tax reform on the horizon, some strategies can be employed before the end of the year that can substantially reduce your 2017 tax bill.
Property Tax – The Senate version of tax reform eliminates all property tax itemized deductions beginning in 2018, while the House versions retains a limited deduction. If the property taxes on your home, second home or vacant property are being paid in installments with an installment due in 2018, it may be appropriate pay that balance in 2017 to increase your tax deductions for this year.
State Income Tax – – Both the House and the Senate versions of tax reform eliminate the deduction for state and locale income taxes beginning in 2018. If you reside in a state that has a state income tax, estimate your 2017 state tax liability and make sure your full liability is paid before the year’s end. You can ask your employer to boost the amount of your state withholding by a reasonable amount, or if you are self-employed, pay your 4th-quarter estimate due in January in December and increase your deduction.
Caution 1: taxes are not deductible for alternative minimum tax (AMT) purposes. The tax-maximizing strategy could trigger the alternative minimum tax (AMT).
Caution 2: Right now House and Senate are still trying to reconcile their differences in their tax bills. Although it's virtually certain there will be a tax bill, no one knows what's the final version will look like.
Read the latest special report on How GOP Tax bill impact San Francisco Bay area and beyond?
For more tax planning ideas, read the last minute tax planning. Get organized and have a stress free tax season, read Tax made Simple.
If you would like to make an appointment to develop a year-end tax strategy, please give this office a call 415-704-8989 or email me at ymckee@virtualcpaforyou.com
Circular 230:The articles are for general information only. In accordance with IRS Circular 230 they are not considered tax opinions for purposes of relying on such statements in any challenge of the reporting of the above transaction by the IRS. If a full tax opinion is required certain procedures must be met . Also there is a significant cost for a full tax opinion to meet the requirements of Circular 230.