What to do before year-end!

It’s just about official, folks. Major changes to the tax code are upon us. At this point, you’re probably wondering what moves you need to make before year-end. Summarized below is a list of items that you should consider:

• Prepay your property taxes on your primary residence! The new tax bill is capping property taxes and state income taxes (including SDI) at a combined $10K starting in 2018. As we all know in California, that ain’t enough. This only pertains to personal residences, rentals are unaffected.
• Pay in estimated taxes to California prior to year-end, and pad those estimates. For many, this will be the last tax year that this deduction will make a difference, due to the limitation discussed above.
• Consider pushing forward charitable contributions to 2017 that you may have donated in 2018. It is quite possible that you won’t be itemizing your deductions in 2018, due to the standard deduction increasing to $24K for married couples ($12,700 for singles). Thus, take the benefit while you can. You can use a donor-advised fund if you don’t want to gift the money to a charitable organization all at once.
• Consider making an additional mortgage payment in 2017 (that you normally would have paid in the first half of January). This would be applicable if you are at that $24K ($12,700 single) mark for itemized deductions. If you’re around that mark, you’d get no incremental benefit next year, whereas it will benefit you this year.
• Accelerate income. Most of our clients will be in a better tax position for 2018, so they should defer income (for example, by delaying invoices) so that it gets taxed at a lower rate next year.
• Do not refinance a mortgage above $750K without consideration to the limitation of deductibility of some of that interest. Remember, the interest that is allocated to the portion of the loan above $750K will not be deductible. Refinances will most likely count as new mortgages even though it’s on an existing home.
• Incur any unreimbursed employee expenses in 2017, as opposed to 2018. These expenses will no longer be deductible in 2018, so if your employer does not reimburse you for job-related expenses, pay for those in 2017 to the extent possible.
• Defer your medical expenses to 2018, where appropriate. This doesn’t mean avoid the hospital if you break your leg over Christmas vacation. It means pay whatever medical expenses you incur in 2018. This is because the floor (the dollar amount that you need to exceed before you can deduct any of those expenses) has decreased from 10% of income to 7.5% of income.
• Defer/Accelerate conversion from a traditional IRA into a Roth IRA. If you’re in a better tax situation in 2018 than 2017, you should delay your Roth conversion so that it is taxed at lower rates next year

Beyond the above, there are a number of planning items to be discussed in 2018, especially as they pertain to changes in the taxation of corporations (C-Corporations) and pass-through businesses (LLCs, S-Corps). Keep an eye out for a Blog entry on this topic soon.