The Tax Bill has passed. Now what should you do?
The new tax bill has increased the standard deduction to $24,000 on a joint return, $18,000 for unmarried individuals with a qualifying child, and $12,000 for everyone else. If your itemized deductions will not exceed these amounts, you can make some last minute moves to still receive tax benefit for your expenses. Consider the following:
- Increase your 2017 charitable deductions by up to the amount you would normally make in 2018
- Prepay your 2018 real estate taxes before the end of the year.
- Make your 4th quarter 2017 state income tax estimate before the end of the year. Just be aware that you cannot prepay your 2018 state tax liability in 2017 and get the deduction. They added specific wording to the bill that does not allow you to deduct your 2018 income taxes until 2018.
If your itemized deductions will exceed the new higher standard deduction, you still have some moves to consider. Some deductions will be limited after 2017, while others are going away (at least temporarily).
- If you make donations for university athletic seating rights, be sure to secure these rights in December. These donations will not be deductible in 2018.
- *Total state and local taxes will be limited to $10,000 (or $5,000 if married filing separately). If your total will be over this limit, consider:
- Make your 4th quarter 2017 state income tax estimate before the end of the year.
- Prepay your 2018 real estate taxes in 2017.
If you have dues to professional organizations, including unions, pay for work-related licenses, legal fees, or regulatory fees that will be due thru the end of 2018, make sure to make these payments prior to year-end.*
- If you are required to furnish your own supplies or uniforms, or buy your own tools, make sure you are stocked up for the next year.*
- Any legal bills related to producing or collecting taxable income should also be paid prior to year-end.*
- Other items you may want to pay ahead for the next year includes safe deposit box rent, investment fees, and appraisal fees for casualties or charitable contributions.*
*These only apply if you are not subject to alternative minimum tax.
There is also a significant change to education expenses starting in 2018. Qualified expenses for qualified tuition programs, commonly known as 529 plans, will be expanded to include elementary and secondary school expenses. This will apply to both contributions and distributions made after December 31, 2017.
As you can see, there are several opportunities under the new tax plan, but time is of the essence. You must act quickly as the end of the year is almost here.
UPDATE: Clarification on Real Estate Tax Payments.
- For 2018, you will be limited to $10,000 combined state and local taxes. This applies to state and local income taxes and personal real estate taxes. This limitation does not apply to any business real estate taxes you pay, like on your rental properties, businesses, or farms. These business real estate taxes are still deductible in full.
- As part of planning for 2018, you can prepay your 2018 real estate taxes before the end of 2017 and deduct them on your 2017 tax return. For this payment to be deductible, you have to have an actual bill you are paying. It cannot be an estimate of what a future bill will be. A payment based on an estimate is a deposit and will not be deductible until that actual bill is determined. The date the actual bill is determined varies by state so check with your local tax assessor before making any payment.