Tax reform has dominated our national mindset lately. But, we’re still wrapping up the 2017 tax year, and few, if any, changes to tax codes are likely to take effect this year.
So, what can you do now to minimize federal and state taxes on your upcoming 2017 return? Here are some savvy steps to take no later than Dec. 31 with tax reform in mind, from Eric and the National Association of Tax Professionals:
Personal taxes
- Income timing – Defer flexible income into 2018, if possible. Many taxpayers will benefit from lower tax brackets next year.
- Itemized deductions – Load up on itemized deductions, such as property taxes, charitable contributions and medical expenses. The standard deduction rises next year and only one in 10 taxpayers is expected to be filing a Schedule A (itemized deductions) in 2018.
- Accelerate any of your children’s unearned income into 2017. Kiddie tax rates are going up in 2018.
- Prepay investment expenses and tax preparation fees in 2017. They won’t be deductible in 2018.
- State income taxes – If you typically owe state taxes when filing your return, prepay an estimate of those taxes by Dec. 31. Make the same move if you owe back taxes to Minnesota or another state.
- Electric car – Thinking electric? Buy one now, because Uncle Sam’s generous tax credit expires at year-end 2017.
- Buy something big –Just from the standpoint of sales taxes. The itemized deduction for sales taxes disappears in 2018, and a 2017 purchase still will capture that tax break.
- Moving expenses – The deduction for job-related moving expenses goes away in 2018. Pay as many expenses as possible by Dec. 31.
- Unreimbursed business expenses –If you’re used to writing off work expenses that your employer won’t reimburse (e.g. mileage, certain types of dues or other trip expenses), prepare to lose that itemized deduction in 2018. It didn’t survive tax reform.
Business taxes
- Income timing – Same strategy as for individual taxpayers. Push business income out into 2018, when tax rates will be lower.
- Business losses – Recognize losses in 2017, if possible. They will be limited next year.
- Vehicles – Wait to buy a business vehicle until 2018. One reason: Depreciation on luxury autos rises substantially next year. BUT, if you fancy a new work truck and its GVWR is more than 6,000 lbs., heading to the dealership by Dec. 31 could be a good move to reduce 2017 income.
- Intellectual property – Sell any business processes or patents before the end of this year. They receive favorable, capital gains treatment for 2017, but will be taxed as ordinary income in 2018.
As always, taxes are highly personal, so if you have questions, contact Eric for more specific guidance!
On a separate year-end note, here’s a warning/reminder from the Internal Revenue Service about Individual Taxpayer Identification Numbers. If you use this type of account instead of a Social Security number and your number is expiring, act quickly. The IRS says failing to renew by year-end (Dec. 31) could delay the turnaround time for your 2018 tax return.
You should have received an IRS letter in the summer if your ITIN is expiring. More than 1 million taxpayers did. If you haven’t used your number on a federal tax return in the last three years, the ITIN automatically has expired. There also are some series of numbers that no longer will be good for 2018.
The IRS provides details online. Start at https://www.irs.gov/newsroom/get-ready-for-taxes-taxpayers-with-expiring-itins-should-submit-renewal-applications-by-dec-31