With the expectation of significant tax changes coming in 2018, you might wonder how your 2017 year-end tax planning will be affected. While we don’t have all the answers yet, we are able to share some insights as we look at the proposed provisions.
Income Tax Deductions
The tried-and-true plan of deferring income and accelerating deductions holds true for 2017. The expectation is that individuals will have lower tax rates in 2018. C corporations will eventually have a tax rate drop, we are just uncertain if that will occur in 2018 or 2019.
State Income Tax Deductions
Both the House and Senate propose eliminating the state income tax deduction. Consider prepaying your 4th quarter state income tax estimates before December 31st. However, keep in mind that if you expect to pay the Alternative Minimum Tax (AMT) in 2017, this prepayment will not provide you with a tax benefit.
Property Tax Deductions
Both the House and Senate propose limiting the property tax deduction to $10,000. Consider prepaying your 2018 real estate taxes in 2017, but again, be sure to consider the effect of AMT in 2017.
Standard Deduction for Individuals
We expect the standard deduction for individuals to increase dramatically. The proposals have the deduction raised to about $12,000 for single filers (up from $6,350 in 2017) and $24,000 for married filers (up from $12,700 in 2017). If you think your 2018 itemized deductions (adjusted for the tax deduction limitations noted above) will be less than the standard deduction, consider prepaying mortgage interest or front-loading your planned 2018 charitable contributions.
As you think about your own tax situation, know that Cray Kaiser is available to walk through the above scenarios to see what may work best for you.