Anticipating Tax Reform: Things to Do Now
As you've probably heard on the news, the House and Senate Republicans are working frantically to pass a tax reform package before the end of the year. Although they still need to work out the differences in their plans, some changes appear in both plans, so we want to make sure you know about anticipated changes which may present some unique tax planning opportunities for 2017.
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Get the Jump on Fourth Quarter Taxes Before Year End 

Both proposals would almost double the standard deduction to $12,000 (single) and $24,000 (married) from the current $6,350 and $12,700, respectively. The result: many taxpayers who have typically itemized in the past will start taking the standard deduction in 2018. In addition, state income taxes and sales taxes would no longer be deductible, and real estate taxes would be limited to $10,000.  So it may make sense to pay your 4th quarter state income tax estimate(s) and all or a portion of your real estate taxes before year-end.

For those who will still be itemizing next year, prepaying real estate taxes over the $10,000 would provide a deduction in 2017 which will likely be lost in 2018. For those who will likely no longer be itemizing, prepaying all of your real estate taxes in 2017 would give you a deduction this year for which you would get no additional benefit in 2018.  
For those living in DuPage County, you can send a check payable to the DuPage County Collector, 421 N. County Farm Road, Wheaton, IL 60187 (Note: DO NOT USE THE P.O. BOX ADDRESS!) Be sure to write your parcel number (PIN) and “2017 Taxes” on the check. Per the Treasurer’s office, the maximum amount accepted will be your 2016 real estate tax amount plus 5%.

Caution: You need to be sure that making these payments won’t push you into paying alternative minimum tax (AMT). Otherwise, you may as well wait until next year to pay. If you have questions about the AMT or how any of these changes may affect you, please call us at 630-653-1616.
Other Things to Consider
  • Pay your January mortgage payment in December. (Make sure it is received by the mortgage company prior to December 31. You may also want to confirm with your lender that they will properly report it on your 2017 Form 1098.) Note: The IRS won’t allow prepaying interest more than one month ahead.

  • If paying off multiple mortgage loans, you may want to prioritize paying off any home equity debt first. (If the Senate plan passes, it would no longer be deductible. If the House bill passes, only debt incurred after the effective date of the bill would be nondeductible.)

  • Defer income if your tax bracket will be lower in 2018 or if you have pass-through business income.  
  • Accelerate deductions into 2017 where possible. You can use a credit card to pay in 2017, even though the credit card bill won’t be paid off until 2018.

  • If you have done a Roth conversion in 2017, you may need to decide before December 31 whether you want to undo the conversion. This option may go away in 2018.

  • Senate tax bill would enforce “first-in-first-out” rule which would require investors to sell their oldest shares first, rather than being allowed to choose the one which would generate the lowest taxable gain. Discuss with your financial advisor whether you should take advantage of the flexibility still available this year to select which stocks to sell.
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  • The deduction for medical expenses may be lost next year either because that deduction has been repealed or because the higher standard deduction would keep you from itemizing. You may want to consider accelerating “discretionary” medical costs before the end of the year including items such as expensive medical procedures, prescription drugs, new glasses, medical equipment or orthodontia.
  • Neither the House nor the Senate bill would repeal the itemized deduction for charitable contributions, but charitable contributions after 2017 may not yield a tax benefit for those who don't itemize. If you think you will fall in this category, consider accelerating some charitable giving into 2017. You may also want to consider opening a donor-advised fund which lets you get the deduction immediately, then decide later who gets the funds.
Let Us Help You Plan
No one knows with certainty what the final tax bill will look like, but it does appear likely that some tax reform will happen this year. We would be happy to help you decide what may work best for you. Please call our office at 630-653-1616 or email us at info@mmaadvisors.com if you have questions or would like to discuss the implications of these tax reform proposals for you and your financial situation.