2017 Tax Planning Items

As we write, the new tax bill is poised to be signed into law later this week. We are studying the numerous new provisions, and besides significant rate reductions, a couple of items standout:

  1. The standard deduction will be increased as follows:

    Filing Status Previous Amount New Amount
    Single $6,500 $12,000
    Head of Household $9,550 $18,000
    Married Filing Jointly $13,000 $24,000
  2. The deductibility for taxes (property, sales, and income) will be capped at $10,000 starting in 2018.

In view of these changes, consider taking the actions below to save taxes in 2017:

  • Defer income and accelerate deductions. Generally, if you can defer your income into 2018 (especially if you are self-employed or have income from a pass-through partnership or S Corporation), then you should pay less tax on that income in 2018 versus what you would pay in 2017. Accelerating your deductions in 2017 will also have the same effect.

  • Consider paying 2017 taxes by December 31, 2017. The increased standard deduction in 2018 will make it more difficult to take advantage of itemized deductions, which include property and state income taxes. In addition, if you pay property and state income taxes annually in excess of $10,000, then the new tax bill will limit your tax deduction in 2018. Paying these items in 2017 can ensure you benefit fully from the tax deduction for one last year.

    If you haven’t already, consider paying your 2017 property taxes now. You should also consider paying your 2017 Tennessee Hall income taxes in December rather than waiting until April. Finally, if you file in states other than Tennessee, consider paying any 2017 4th quarter estimated taxes in December.

    Keep in mind, if you generally deduct sales tax instead of income tax, then there is no need to prepay your income tax. However, you might want to accelerate purchases of vehicles and other qualifying items into 2017.

  • Consider additional charitable gifts before year-end. As mentioned above, the increased standard deduction will also make it more difficult to benefit from charitable contributions in 2018. By giving in 2017, you can likely receive a tax deduction at a higher rate, and one that you might not get at all in 2018.

    One option for giving more in 2017 is to utilize donor advised funds. You can take a tax deduction for all contributions to the donor advised fund during 2017, but you don’t have to specify the recipient of the donation immediately. You can do it over time.

    A particularly advantageous option is to use appreciated stocks or mutual funds to contribute to the donor advised fund. This not only provides you a deduction equal to the full appreciated value of the stock, but it also keeps you from ever paying tax on the appreciation. Among others, Vanguard, Fidelity, and Schwab all provide access to donor advised funds.

As always, before taking action, you should confirm that your specific tax situation will benefit from the items outlined above. If you have any questions, please do not hesitate to call us.

We appreciate the opportunity to serve you, and we are very thankful for our relationship. Best wishes to you and your family during this holiday season.