4 Things To Do Before the Tax Cuts

By Chesky Landa, CPA

President Donald Trump has signed the Tax Cut and Jobs Act into law, and it will have an impact on nearly everyone who files income taxes — individuals and business owners.

Here are four moves you can make that might save you money.

Keep in mind that with a few exceptions, this law will mainly take effect for 2018, not 2017 taxes. This means two things: (1) you still have time to take advantage of some existing tax rules for 2017 and (2) planning for the future is more important than ever. What you do in the next few days could have a real impact on your bottom line.

Here are some key points to know. Please note that individual situations vary, so always consult with a qualified tax advisor before making critical decisions.

1. PREPAY STATE AND LOCAL TAXES THIS YEAR

In the past, federal taxpayers who itemized their deductions could deduct state and local government taxes, including sales and property taxes. This is changing for the coming year, and in 2018 the deductions for all State and Local tax, including Property Taxes, will be capped at $10,000. It’s not in effect yet, though, so take full advantage while you can.

For instance, the self-employed usually pay their Estimated Quarterly State Income Tax in January. If you pay it before December 31, 2017, you’ll be able to deduct those State taxes for 2017.

Likewise, it may be wise to prepay your 2018 property taxes in 2017. Unfortunately, prepaying your State Income Tax will not help you, as Congress has explicitly stated that you won’t be able to deduct your 2018 State tax liability in 2017.

2. MOVE UP YOUR CHARITABLE DONATIONS, FEES AND UNION DUES

If you plan to contribute to charity, it’s always been a good idea to contribute or fulfill your pledges in December. Why not get the tax savings earlier?

This year, though, this can be more pertinent. For some, it’s now or never — since the 2018 standard deduction will be raised to $24,000 for married filing jointly, or $12,000 for single filers.

Many taxpayers who have been itemizing may switch to the standard deduction instead. This will leave them with no specific tax benefit for the contributions of 2018. To avoid this and reap a tax benefit from your contribution, it may be best to make your donations before January 2018.

Likewise, some other itemized deductions will be eliminated in 2018, such as tax preparation fees and union dues. If you can, you may want to pay these in 2017.

3. HURRY UP THAT CLOSING

If you are under contract to purchase a new home prior to December 15, and your mortgage will be greater than $750,000, try to close before April 1, 2018.

Why? Because mortgage interest on home indebtedness of up to $1 million is deductible as an itemized deduction for 2017, but for 2018 and beyond, this amount will be reduced (to $750,000).

Home purchases that are closed before April 1, 2018, will be “grandfathered” to the previous $1,000,000 deduction, even though they take place in 2018.

4. DEFER INCOME, ACCELERATE EXPENSES

If you own a business, there’s potentially good news for you. Tax rates for corporations will be lowered significantly in 2018. Pass-through entities, such as LLCs and S Corps, will also have a potentially significant tax deduction of 20% on pass-through income (with certain limitations).

What this means for you is that it’s to your advantage to defer your net income to next year. For cash basis taxpayers, this can be done by taking two steps: 1) postpone your billing until next year, and 2) make expenditures this year.

Another reason for accelerating expenditures? Some expenses, such as research, may not be fully deductible in 2018.

–Chesky Landa, CPA is a tax accountant and preparer with many years of experience and expertise helping individuals and small businesses understand their tax scenarios. This article is meant for general information and does not constitute specific tax or legal advice. Conact him at 347-613-4259, [email protected] or visit his new office at 271 Kingston Avenue (above Boeuf and Bun) in Crown Heights.

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