2017 year-end tax planning – a year of uncertainty

President Trump and the Republicans Congress are working to pass a new tax law. However, not all details are known. Furthermore, the current House and Senate bills differ on many significant provisions. Also, more revisions are expected as the two bills are reconciled and brought to the floor for votes. Finally, the Republicans failed to repeal the Affordable Care Act, so many provisions could change, if any changes are ever enacted.

With all the uncertainty, how do you plan? Very carefully – you need to augment your traditional year-end planning by anticipating likely changes.

Practical planning steps

First, be practical:

  • Determine what income and deductions you can move from 2017 to 2018 or vice versa.

Second, review the impact:

  • What happens if you shift any of these amounts of income and deductions to the other year?

Finally, watch for the impact of the Alternative Minimum Tax (“AMT”):

  • If the AMT is repealed next year, how does that change your analysis? Deductions lost to the AMT this year could have value in 2018.

Income

Both the House and Senate bills lower the tax brackets, so income should be subject to less tax in 2018. Furthermore, if the Medicare tax is eliminated, pushing income into 2018 could save significantly.

Conclusion: You probably want to move income to next year if you can.

One possible exception is the sale of your home: both bills move the residency requirement from two of the last five years to five of the last eight years. So, if you are selling to sell a home you lived in less than five years, try to close in 2017.

Exemptions and standard deduction

Both bills raise the standard deductions to $12,000 single/$24,000 married. This may offset deductions that you lose, as discussed below.

Conclusion: You probably want to move deductions to 2017.

Itemized Deductions and Credits

The deduction for state income taxes would be eliminated and deduction of property taxes either eliminated or capped at $10,000 (the current amount).

Mortgage interest on new home purchases would be deductible only on loans of up to $500,000 on the primary residence only.

And these deductions could be eliminated: student loan interest, moving expenses, tax preparation fees, casualty losses, medical expenses. Also, the deduction of alimony could be eliminated for divorces occurring after 2017 and electric car credits and bike to work exclusions could end.

Conclusion: If these deductions are capped or eliminated, you will want to move these amounts into 2017.

Pass-through businesses

Income from an LLC, partnership or S Corporation could see a top tax rate of 17.4 to 25%. However, to avoid abuse (as seen with a similar law in Kansas), rules would be applied so that taxpayers will not simply create entities to have all of their income tax at the lower rate.

Conclusion: wait and see, read the fine print, then see if there are any opportunities to exploit.

Estate taxes

Either the tax on estates would be eliminated or the credit doubled.

Conclusion: you may want to postpone your year-end gift planning.

 

Summary

Carefully review any income and deductions that you can still affect to see if moving will lessen the total taxes you pay for 2017 and 2018.

Good luck and best wishes for the holidays!

If you have any questions, please contact me.

Time saving ideas that pay off in tax planning, investments, technology and daily routines

Ben Franklin taught us that “time is money”. In addition, we all know that we have limited time, so every instant is important to us. In fact, each minute involves a choice about how you spend that time.
However, the best use is often hard to sort out. Moreover, tracking time minute by minutes can cloud the real issue, which is what the best use of your time may be.

Tracking your time: However, as a starting point, Laura Vanderkam suggests keeping a journal of how you spend each day. This can show you how much time you spend, say, checking your e-mail every 15 minutes. If you can evaluate your habits with some clear-headed objectivity, you may find ways to spend your time better.

What is your time worth? Here is a financial perspective on the use of your time. Ms. Vanderkam “what is your Minimum Wage” as way to have you test your use of time financially. Her example is the difference between buying and making your own tortillas. When she factored in the time spent against any cost savings, she arrived at a wage of $1.40 per hour. So, was that a good decision for the use of your time? Maybe if your tortillas taste so much better… but often, tortillas are tortillas.

Here are two more taken from my experience: driving an extra 25 miles to save ten cents per gallon on gas probably nets out to the same total expenditure, after factoring in the gas used to get there, let alone the time. Replacing the brakes or McPherson struts on your car may seem to save money. However, when you factor in six hours or more spent, and the clean up, you have a fairly low minimum wage calculation. It is often better hire an expert and spend time with family.

Dangers of Technology: Another author suggests three time wasters from new technology: texting, remote access and last minute preparation. Geoffrey James finds that each of these appears to save time, but embodies significant risks. For texting, the response is immediate and you have a full record of the communication. That may not be to your advantage in business or personal relationships. Remote access may mean you are never really on vacation, never really relax and recharge, so return in less than par shape. Easy access to information makes last minute work tempting. So much can be reviewed easily. However, this process is usually rushed, and rarely forms permanent memories like long-term studies. Therefore, technology in general can be good, but there are some technologies, or at least the ways in which we use them, that do not save you time and make you more productive.

Now, some ideas that payoff
One time saving idea that pays is gathering your tax information as it comes, saving you from hunting for it last minute. Also, saving each year’s information in an organized manner will save time if ever questions arise or, worse, you have an audit to counter. Finally, if you let your tax preparer know about any changes during the year, you have a chance to react and adjust your tax planning, rather than being told what you should have done when it is too.

The same holds true for evaluating any other financial change. Address it at the time, and save the documentation. For example, when you get a new document, you can now scan and save files on your computer (but be sure to have backups). This way, your information is more easily retrieved and searchable, so you can find the correct item quickly.

Investing: This is an area where too much attention is not the best use of your time but also risks making investment errors. Please see our comments at Faults of the individual investor…. Too much attention can lead you to override your long-term plan so spend the time on other matters. Your portfolio will be better off.

If you create or update your estate plan, be sure to change your beneficiary designations right away. You may even choose to fund trusts you have created, saving time for your executor (or the attorney she hires). See Estate planning overview…

If you have suggestions, or questions, let us know.

Tax Strategies Now save taxes later – year end planning

Now is the time to begin planning for 2009 taxes – and for 2010 tax strategies.

As with past years, the goal is to pay the least amount for 2009 and 2010 together. To do this, the common wisdom is to push income into 2010 and accelerate deductions into 2009. This is especially true if rates will go up in the future.

However, if you will be in the AMT for either year, or if one year with have especially large deductions or income, then the strategies change.

Also, there are some special considerations for planning this year:

* There are certain benefits only available in 2009 or 2010 such as the conversion to a Roth IRA with no income cap and the first time home buyer credit;
* Tax rates after 2010 are likely to go up as reductions in rates from the Bush tax laws end after 2010;
* You may have capital losses to shelter capital gains so you want to use them well;
* Furthermore, there may be taxes to pay for health care law and the stimulus package;
* Make sure you use your Flex account funds and any frequent flyer miles that will expire; and
* Finally, some features may be extended, such as the $8,000 first time home buyer credit.

Sitting down to review 2009 and 2010 could save you money. Also, the work you do now will help on what you owe for 2009 as well as the tax preparation.

There is a very good article with details on this from Kiplinger’s Tax Newsletter that I can forward to you if you wish – Let me know

Thanks,

Steven

Let us know if you have questions or comments. Thanks,

Steven