O Christmas tree, how lovely are your taxable branches
An overview of the new Republican tax cuts law

7 tax moves to make now in light of 2018's new tax laws

Year end accounting taxes calendar pages

It's almost 2018 and we all know what that means. Resolutions, fresh starts and lots of new tax laws.

The good news is that for the most part, the changes to the tax code under the Republican-led tax bill will not affect us until we file our 2018 tax returns in 2019.

But some of those changes in the still-called Tax Cuts and Jobs Act mean we will need to make some tax moves now, this final week of 2017, to take advantage of some tax provisions that won't be around or will be dramatically altered when Jan. 1, 2018 arrives.

Here are seven tax-law related moves to make ASAP.

1. Prepay your property taxes.
The new tax law makes big changes to state and local taxes (aka SALT) when it comes to their deductibility. Next year you still can itemize your state and local income or sales taxes, as well as your real property taxes, but only up to a total of $10,000. So you might want to look into prepaying your 2018 property taxes this week.

Note that I only said property taxes. The new tax law explicitly forbids prepayment of 2018 income taxes.

Still, your property tax bill is likely large enough to be worth prepaying now to add to your 2017 return. This includes your 2017 bill you got earlier this year and, for many folks, is not due until early 2018. It also applies to prepayment of your coming 2018 property tax bill, as long as your local tax assessor-collector will accept such a payment this far in advance.

UPDATE, Dec. 27: The Internal Revenue Service today clarified, somewhat, the circumstances under which 2018 real estate taxes may be deducted on 2017 returns. Basically, prepaid 2018 real estate taxes are not deductible unless the taxpayer has already received an assessment of 2018 real property taxes. "A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017," according to the IRS announcement.

However, the IRS is leaving the determination of assessment to the governing officials. "State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed," added the IRS. In essence, the IRS says you can't guesstimate what your 2018 real property tax bill will be; you need to get official word from the assessor's office.

The IRS announcement offers some examples to help explain the rule. You also should check with your county/parish tax assessor-collector. Some local officials have taken steps to allow property tax pre-payments. Others have told their property owners they are out of luck when it comes to this accelerated federal tax deduction.

Note, though, that prepaying any or all of your 2018 property taxes may trigger the Alternative Minimum Tax (AMT).

Under this parallel tax system (which, by the way, survived the GOP attempt at tax reform), you lose all of your state or local tax deductions on your federal income tax return. And for 2017 filings, you also will lose your personal exemptions and the standard deduction if you are subject to the AMT.

And as for those other state and local taxes, while you can't prepay income taxes, you can still buy a car — of course, only if you were planning to purchase one soon anyway — and write off that added sales tax on your 2017 Form 1040 Schedule A.

2. Double up donations.
Long-time readers of the ol' blog know that I'm a big fan of charitable giving, for feel-good as well as tax reasons. The new tax law makes giving even more valuable this year since your donations might not be worth claiming in coming years.

The reason is the charitable donations itemized deduction, while remaining in the Internal Revenue Code, might not, even when added to your other still-allowable itemized deductions, might not be enough to exceed the increased standard deduction amounts.

I'm sure you'll keep giving for non-tax reasons. However, to get the tax most out of your charitable gifts, consider making added donations — following, of course, IRS donation deduction rules — for the 2017 tax year when you know will be itemizing.

3. Make medical moves.
The itemized deduction for certain medical expense remains and even is enhanced for the 2017 and 2018 tax years. Now instead of need more than 10 percent of your adjusted gross income (AGI) to claim these costs, you only need the pre-Affordable Care Act threshold of 7.5 percent.

If you thought the 10 percent level would leave you out of claiming these doctor and dentist costs in 2017, think again now that the limit has dropped to 7.5 percent.

And even with that lower level in effect next year, too, it might be worth pushing some allowable medical expenses into 2017 since the 2018 increased standard deduction amounts might make this deduction not as attractive next year.

Not sure what you can count here? There's more than you might have realized. Some of these added tax breaks are detailed in my earlier post about other possible medical deductions.

4. Bunch other deductible expenses.
The medical moves are part of a larger tax planning method known as bunching. Here you move as many of your deductible expenses into the tax year in which they'll be more valuable.

This means speeding up expenses into 2017 rather than 2018, particularly those that fall in the miscellaneous category. You need to get busy now digging out receipts of allowable items you can claim on your 2017 Schedule A, as well as completing related deductible expenditures this last week.

The reason you want as much as you can accumulate and/or document here is because this you can only claim this itemized deduction when the total exceeds 2 percent of your AGI.

Technically, this deduction is known on the current Schedule A as "Job Expenses and Certain Miscellaneous Deductions," and it's those job expenses that likely will offer you the most chances to use this itemized write-off for one last time — or at least until the law changes again, either automatically when they expire in 2026 or before if there are dramatic changes in Congress.

If you are member of a professional or trade group that helps you do your job, pre-pay your 2018 membership dues now. Ditto with renewing work-related publications. And that work-related seminar you're attending in 2018, register and pay for the event now.

Other examples of workplace expenses you can count here include safety equipment, small tools, and supplies needed for your job; uniforms required by your employer that aren't suitable for ordinary wear; protective clothing required in your work, such as hard hats, safety shoes, and glasses; and physical examinations required by your employer.

Remember, these are expenses for which your employer doesn't reimburse you. And if you're tired of always paying for these things and decided to look for a new job, those job-search costs, as long as they are for another position in your current field of employment, also count here.

Among the job-hunt cost that count are the costs of producing resumes, stamps to mail them to prospective employers and fees paid to employment agencies. So give your revised C.V. another look and head out to the printer this week!

5. Recharacterize your Roth.
Did you convert a traditional IRA to a Roth IRA earlier this year but want, for whatever reason, to redo that retirement account move? You've only got a few days left to do that.

Previously, you could undo a Roth conversion (usually because of a change in personal circumstances or, more often, investment losses in the converted account) at any time up until Oct. 15 of the following year. As of Jan. 1, 2018, that's no longer possible.

The new tax law repeals the Roth recharacterization option.

Some tax gurus say this part of the law is ambiguous (like a whole lot more in the bill, but that's a post for another time). But others interpret it as strictly saying the reversal of a Roth conversion is gone in 2018.

If that latter group is correct, then Dec. 29, the last business day of 2017, is the last day to undo a Roth conversion.

I suspect this applies to few folks, especially given the stock market's recent performance (today's slight dip notwithstanding). But if you've been having second thoughts about your Roth conversion made earlier this year for whatever reason, these final few days of the year could be your last chance to undo it.

And here are a couple of things not to do.

6. Don't take out that home equity loan.
One of the many home-related tax breaks was the deduction allowed for home equity loans or home equity lines of credit (HELOCs). Folks took out these loans secured by their personal residences and then got to write off the interest on their taxes.

That's not going to happen now. The new tax law eliminates this deduction.

So if you had big holiday expenditures and are thinking a HELOC would be a good way to pay the bills coming due next month, stop, especially if you were considering the home-related debt because of its tax break.

Find some other way to pay those bills that won't possibly put your home at risk. And if you already have a home equity loan, you might want to consider, if your financial situation allows, paying it off early since it's no longer of any tax use.

7. Don't get married.
Hey, I'm a lover of love. Really!

But since your marital status affects your taxes, sometimes it pays to be aware of what a late-in-the-year change might mean. For filing, deduction and many other tax purposes, your marital status on Dec. 31 is your filing status for the full tax year.

For 2017 tax reasons, it might be better to be unmarried for a few more days.

If you're planning elaborate year-end nuptials, it's too late to reconsider just to save some tax dollars. But if you're contemplating eloping, hold off on that trip to one of the Elvis chapels in Las Vegas until at least Jan. 1.

The delay could be beneficial if you or your future spouse has lots of medical expenses and not a huge salary. The medical expenses deduction, which as noted earlier only has to exceed 7.5 percent of AGI for 2017 and 2018 tax years, could be easier for him or her to meet as a single taxpayer.

But if you marry on or before Dec. 31, your joint return (which most couples file) will mean your combined income will produce a larger AGI, making it harder for y'all as a couple to get over the 7.5 percent threshold. In this case of in sickness or health that you'll vow, it might be wise to delay a few days for tax purposes.

Then in 2018 as a married couple, you'll have a much larger standard deduction, which could negate the need to itemize at all. And starting off your new married life with easier tax filing is in itself a pretty nice wedding present.

You also can read my earlier post on 10 year-end tax moves that includes some tax actions that aren't affected by the new tax law.

And if you want more on the new tax law, my belated Christmas gift to you comes in the following blog post packages:

Happy year-end tax planning and Happy New Tax Law Year!

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Comments

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Karen Peyton

It's February 2018 and I'm still looking for a glimmer of hope. Despite lower tax rates and increases to income within each, it's hard to think a family of five with a mortgage and property taxes will benefit. Using the personal exemption rate for 2017, they will lose better than $20,000 in deductions right off the bat. Assuming mortgage interest of $12,000 and taxes of $3,000...they won't even be able to itemize.
Maybe it will all look better on paper! "So let it be written..."

Pqjsandiego

OK I assume that this comment will NOT be posted because this might be more of a quibble than a straight-up disagreement. You wrote "Note, though, that prepaying any or all of your 2018 property taxes may trigger the Alternative Minimum Tax (AMT)." But just because a property tax prepayment might "trigger" AMT is not necessarily a reason to skip doing it (as your statement could be read to imply). First of all, literally the last dollar of a certain deduction (such as property taxes) could cause a taxpayer to cross over into AMT. BUT, if someone made a $5,000 property tax prepayment and if the last dollar (or the last hundred dollars) of that prepayment triggered AMT, that would almost certainly mean that the first $4,999 [or first $4,900] of the prepayment generated **significant** federal income tax benefit. Clearly the $5K prepayment under those fact patterns would be worth doing regardless of the fact that AMT was triggered. IMO, the real issue is not whether AMT is triggered or not. The real issues are (A) how much federal income tax benefit is the acceleration of a given deduction likely to create and (B) what happens if the deduction is NOT accelerated into 2017. There are probably tens if not hundreds of thousands of taxpayers who will absolutely have more than $10K of itemized tax deductions in 2018 no matter what they do. And let's recognize that the context of this discussion is that people are making 2017 year-end tax planning computations which are guesswork to some degree. So, if a taxpayer KNOWS she will have more than $10K of itemized tax deductions in 2018 no matter whether she prepays a certain property tax installment or not, and if there's a chance that prepaying her property taxes in 2017 MIGHT create some federal income tax benefit this year, why not make the prepayment? But there's more: because there's another whole dimension of the property tax prepayment question which I have not heard anyone talk about: *state* income tax benefit. Take the earlier example of the taxpayer who knows she will have more than $10K of itemized tax deductions in 2018 no matter what she does today at the end of 2017. What if she lives in NY and is in a high marginal state income tax bracket? Even if she is so far into federal AMT that the 2017 property tax prepayment would probably generate no 2017 federal tax benefit, isn't it obvious that a state income tax savings from a 2017 property tax prepayment is better than zero income tax benefit if the payment is made when scheduled in 2018? (Note that the preceding assumes that states like NY which piggyback on federal income and deduction rules will not change their 2018 state income tax laws to allow deductions no longer permitted under federal law.) Needless to say, as the cliche goes, "it's complicated"...

Pqjsandiego

With regard to the interest on HELOCs, you wrote "The new tax law eliminates this deduction." But your statement is overly broad and thus plainly wrong if read literally. That's because a HELOC can qualify as "acquisition indebtedness" to the extent that the loan proceeds were used to substantially improve a qualified residence, for example. Interest on *those* HELOCs clearly CONTINUES to be tax deductible under the new rules. And while I won't take the time to get deeper into the tax weeds just now, there are actually a number of other ways that interest on HELOCs could continue to be tax deductible under the new law.

Pqjsandiego

Comments on your observation "And as for those other state and local taxes, while you can't prepay income taxes, you can still buy a car..." I see from the context of your comment that you were referring to prepayments of 2018 state income tax. But your statement as written was overly broad and missed a couple of very important points: (1) Taxpayers who make quarterly estimated income tax payments to their states CAN INDEED prepay the quarterly installments of **2017** state income taxes otherwise due on January 15, 2018 and bring those deductions into 2017 ahead of the coming limits on itemized tax deductions. And (2) those who know or estimate that they will owe additional 2017 state income taxes when they file their 2017 state income tax returns next April CAN INDEED prepay those 2017 state income taxes now as well. Of course, as you noted, adding to 2017 itemized tax deductions can cause a taxpayer to cross over into AMT, a definite caveat with regard to the two legitimate state tax prepayment options noted above.

Bev Smith

On prepayment of 2018 property taxes, newly issued IR-2017-210 clarifies that the prepayment is only deductible in 2017 if the 2018 taxes have actually been assessed by the locality.

Kay Bell

No, I meant 2017. If you bunch a lot of tax deductions at the end of this year to get the most of them before they are eliminated in 2018. That could throw you into the the AMT for your 2017 filing, meaning you could lose your exemptions and deductions on that return. There are no exemptions any more starting in 2018 under the new tax law.

Elliott

"And for 2017 filings, you also will lose your personal exemptions and the standard deduction if you are subject to the AMT."

Did you intend to say "for 2018 filings"?

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