Tips for Year-End Tax Planning in an Uncertain World

As the House and Senate work feverishly to combine the two versions of the new tax legislation, we’re working to shape tax strategies that make sense for our clients as the year-end approaches. Since we don’t have final versions yet, it’s a tricky process. But there are a few things that should help for just about everyone. Here’s the list:

  1. Defer Income, accelerate expenses. Both House and Senate versions reduce tax rates and axe some deductions. But it’s universally accepted that any changes will impact 2018 and beyond. So push income into the year that will have lower rates, but pull expenses up into 2017 if possible so you don’t lose them if they’re eliminated through the new legislation.
  2. Formalize your business activity. If you have expenses that are ordinary, necessary, and reasonably related to the production of income, then they’re generally eligible to be claimed as business expenses. But you need to formalize your business to capitalize here. And it could impact your tax bill substantially (we regularly see savings of 40% to 60%). So if you don’t have a business entity yet, get one. And start now tracking your expenses for 2017 from your personal bank statements and credit card statements. But you should also setup a business bank account and cover business expenses there from this point forward. This may sound simple but it will be a huge benefit for most taxpayers who have business income.
  3. Property Taxes – pay them now. If you’re in a position to pay next year’s property taxes now, do it. This is one deduction that is highly likely to be eliminated or reduced in 2018. So pay some or all of 2018’s taxes now to get the benefit.
  4. Start and fund a Health Savings Account. Medical expenses have been the “false deduction” for many years (you can’t claim them unless your expenses exceed a % of your income). Whatever law emerges is likely to reduce (or eliminate) this deduction. But if you contribute to a Health Savings Account, then use the account to pay your expenses, you get the deduction (without the “% of Income” threshold) and it’s likely to survive the new law.

And watch out for the Alternative Minimum Tax Saga – Republicans have long been promising to eliminate it but that’s likely to be an uphill battle that may be deferred for another day. If it happens, it would further simplify taxes for everyone. It’s just not clear at this point which way the issue will be decided.

We’ll keep you posted as more details become available but these tips will at least get you some benefit before year-end hits. Call us at (480) 888-7111 to schedule your free consultation today!