Here is a copy of a letter we sent to our SageBroadview clients:
Year-End Reflections on the New Tax Law
Dear SageBroadview Clients and Friends:
We interrupt your busy holiday season with a reach-out on this week’s U.S. tax code overhaul. While the ink still dries on this sweeping new legislation, you may be wondering whether there are ways you can or should spring into action immediately, before year-end, to reposition yourself for the new law of the land.
First, we want to emphasize that the new rules (except for one relating to medical expenses) are not retroactive. For the most part, your 2017 tax return – the one due this April – will still be prepared under pre-reform law.
Practically speaking, this means there is probably not a great deal you must do right away. If we’re aware of circumstances in your life that might warrant otherwise, we will be in touch with you directly to assist – if we haven’t been already. And of course, we remain on call as always, to promptly assist with any questions or requests you may have at your end.
In the meantime, here is our general take on how to position your year-end tax planning choices.
Do you value your limited holiday season time with loved ones far more than the potential to shave off some future tax dollars owed? If so, even if you might forgo potential savings, you might prefer to opt out of making any special tax-planning moves at this time (beyond those you’d be doing anyway).
Would you rather ensure every tax-related dollar is spared, even if it takes a little extra immediate time to do so? If that’s the case, there are a few areas you may want to consider right away:
- Your charitable giving habits
- Timing of the payment of your personal real estate taxes, and
- Timing of your taxable income.
First, let’s talk about your charitable giving. By design, many Americans are likely to fare better in 2018 by taking the higher standard deduction available under the new law instead of itemizing deductions on Schedule A. If it’s likely you will no longer submit a Schedule A next year, then charitable contributions will no longer help you reduce your taxes.
BUT, if you’ve been itemizing in years past – i.e., submitting a Schedule A – you’ll probably still itemize in 2017. Thus, there may be benefits to making your 2018 charitable contributions before year-end, when they might still “pay off” for you and your recipients alike (subject to existing limitations). You can write those checks directly. Or, this might be a good time to consider funding a Donor Advised Fund with highly appreciated securities or cash, from which you can distribute donations in the future while taking the tax break today.
Secondly, with the higher standard deduction and the limited deductibility of state, local and real estate taxes in 2018, consider prepaying a portion of your 2018 real estate tax obligations before December 31st of this year. If you make quarterly state estimated tax payments, consider making your 4th quarter installment normally due January 15, 2018before December 31st to get another deduction into this year. The effectiveness of these prepayments may be limited by the Alternative Minimum Tax, so we recommend having a discussion with us before sending off the checks too early.
Many Americans’ tax rates are expected to decrease next year. Thus, if possible, consider deferring earned and unearned income until 2018, you may end up paying less tax on it.
The one retroactive change effective for the 2017 tax year is that the deductibility of unreimbursed medical expenses is now limited to only 7.5% of your Adjusted Gross Income, as opposed to 10.0% we started the year with.
As always with tax planning, there are a ton of caveats, catches and exceptions to these rules of thumb. If you are thinking of taking action before year-end, we hope you’ll be in touch, so we can discuss the details with you. Either way, we will no doubt be having much deeper discussions in 2018 about what the new tax law means to your tax planning, your personal wealth, and your lifetime goals.
Should you wish to take a deeper dive into the specifics, here are a few articles to read:
- I suggest you start with What’s in the Tax Bill, and How It Will Affect You (The New York Times, 12/16/2017 & updated 12/21/2017). Ron Lieber and Tara Siegel Bernard take you through most of the provisions, without getting too in the weeds.
- This Forbes article is a very good explainer, with pictures, of the Schedule A – Itemized Deductions form, after tax reform. (Kelly Phillips Erb, Forbes, 12/20/2017)
- Itemized Deduction for State and Local Taxes discusses if prepaying state & local income taxes and/or property taxes might make sense for you, or is even allowed, under the new law. (Fairmark, 12/20/2017)
We look forward to being here for you – today, tomorrow, and throughout the years ahead.
LAWRENCE J. ANNELLO, CPA/PFS, CFP®