1. Give to Charity
A typical piece of end-of-the-year advice is to increase your potential deductions before Jan. 1. Deductions claimed for things you did this year will lower tax bills due the following April. Wait until January, and you’ll need to cool your heels for more than a year to get the benefit of deductions claimed.
This year, beefing up your charitable giving could be even more effective. If your tax rate is falling in 2018, your deductions are more valuable if claimed against this year’s income. Giving to charity, a tax deduction that’s preserved under the tax bill, is an effective way to boost your 2017 deductions on short notice.
And even if your tax rate is going up next year under the new bill, you may still want to make a bunch of charitable donations in 2017. Most deductions, including the charitable one, can only be claimed if you itemize your tax return. The bill would sharply limit the number of taxpayers who would benefit from itemizing: First it raises the standard deduction from $6,350 to $12,000 for single people, and $12,700 to $24,000 for married couples. Second, it limits other deductions—most famously for state and local taxes—so it’s harder for taxpayers to reach the threshold where itemizing makes sense.
2. Defer Income
Another traditional recommendation for this time of year is to defer income. While salaried workers generally can’t choose when they get paid, business owners can often delay registering income until the following year, lowering their April tax bill in the process. Investors can also control their taxable income—and thus lower capital gains tax bills—by selling losing stocks or waiting to sell winning stocks until 2018. In most years, deferring income merely delays the taxes you will have to pay eventually. But, if you expect your tax rate to fall next year, deferring income into 2018 could actually save you money. (There’s also some good news for equity investors when it comes to the FIFO rule.)
3. Pay Your Taxes—If You Can
As we noted, the tax bill would limit how much state and local taxes (or SALT) individuals can deduct, to no more than $10,000 of a combination of property taxes and either income or sales taxes. The move by the Republican-controlled Congress was criticized by Democrats as an effort to make citizens of high-tax blue states pay for benefits to corporations and citizens of low-tax red states. As a result, advisers had been planning to instruct clients targeted by this provision to find ways to maximize their SALT deduction in 2017, by pre-paying next year’s taxes as much as allowed and deducting them under the old rules. But the final compromise bill, unveiled Friday by Republicans in the Senate and House, explicitly closes this loophole. Any 2018 local taxes that are paid this year would need to be counted on next year’s taxes, according to the bill. However, any taxes due for 2017—or any late taxes from previous years—could still be deducted on a tax return due this April.
4. Employee Expenses
Current tax law allows employees to deduct unreimbursed expenses related to their jobs as long as they’re more than 2 percent of income. The tax bill ends these itemized deductions after the end of this year. So, workers should think about whether they can pay —and get the receipts—for as many of these expenses as possible this month. Examples of unreimbursed expenses for employees might include tools and supplies, occupational taxes, work uniforms, union dues, and expenses for work-related travel. Self-employed people and business owners would still be able to deduct expenses under the new tax bill.
5. Pay For Your Move
Under the proposed law, you’ll no longer be allowed to deduct work-related moving expenses after the new year (unless you’re in the military). Of course it might be difficult to schedule a cross-country move on such short notice, but, if you did move, make sure you clear up any moving-related expenses by Dec. 31. And if your destination happens to be a low-tax red state, maybe thank Santa Claus for your good luck.
6. Stock Transactions
Another typical tax planning issue involves your capital transactions. Capital gains are an area ripe for end-of-the-year planning as taxpayers can determine whether to buy or sell investments to either recognize a gain or loss.
A popular strategy is to sell investments with built-in losses in to offset any capital gains a taxpayer had earlier in the year. However, if capital losses exceed capital gains for the year, taxpayers are only able to deduct up to $3,000 of the losses against ordinary income. Any net capital losses above $3,000 must be carried over and deducted in subsequent years. However, watch the wash sale rules if you plan on repurchasing the investment you just sold, which rules could prevent the recognition of the loss
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