1. The proposed tax law changes include a reduction in tax rates for many taxpayers. If possible, you should attempt to defer income into 2018 to take advantage of the lower 2018 rates. If you are due a bonus, speak with your employer to see if the bonus can be delayed into 2018.
2. The current proposal eliminates the itemized deduction for state and local income taxes. If you are making estimated state and local income tax payments, the estimates should be made prior to December 31st. The check should be dated on or before December 31st and mailed prior to that date.
3. If permitted, you should consider paying some portion, if not all, of your 2018 property taxes on your nonrental properties prior to December 31st. The itemized deduction for property taxes in the proposed law will be capped at $10,000 next year. Additionally, the standard deduction would be raised to $24,000 for a married couple and $12,000 for a single person. Therefore, those taxpayers with property taxes greater than $10,000 or whose total itemized deductions will not exceed $24,000 (or $12,000 if single) in 2018 should consider prepaying some portion of your 2018 property taxes in 2017 while they are fully deductible. You may be able to prepay your taxes directly to your town or municipality even if your taxes are generally paid by your mortgage company. Do not prepay your taxes through your mortgage company, as they will apply any excess payments to your mortgage principal. If you prepay your property taxes to your town, you should call your mortgage company to alert them to this and to discuss how this will affect your monthly mortgage payments. Please note that some jurisdictions will not permit you to prepay your taxes; you should check with your own jurisdiction before making a payment.
4. You should consider prepaying some of your charitable contributions in 2017. This will have the effect of the contributions being deductible at a higher effective tax rate for those people whose tax bracket may be cut in 2018. Also, due to the loss of most itemized deductions in 2018 and the increase in the standard deduction, many more taxpayers will take the standard deduction in 2018. Hence, those taxpayers will not get any additional deduction for charitable contributions in 2018.
5. If your 2017 medical expenses will exceed 10% of your adjusted gross income and you are thus able to claim medical expenses as an itemized deduction, you should consider paying all outstanding medical bills prior to December 31. Additionally, you may accelerate discretionary purchases of items such as eyeglasses, contact lenses and medical devices. Note that the House version of the new tax proposal eliminates the medical expense deduction in 2018, while the Senate version retains it.
Obviously, all of the above are generalizations, and the degree to which they will help you will depend on your individual tax situation If you have any specifics that you would like to discuss, please do not hesitate to contact us at 201-261-4700. We are monitoring the progress of this bill as it passes through Congress and will keep you informed of new matters.