2017 YEAR-END TAX PLANNING - WHAT DO WE TELL OUR CLIENTS?

Around this time of year, we tax professionals usually send out year-end tax planning letters to clients.  But year-end tax planning is different this year, with the possibility of tax “reform” legislation being passed before the end of 2017.  And more so, with the additional possibility, although I think remote, that tax law changes could be made retroactive to 2017 instead of taking effect beginning with tax year 2018.

 

What do we tell our clients?

 

The traditional year-end tax plan of accelerating deductions and postponing income is especially applicable this year considering that the “framework” for tax reform calls for reducing tax rates, eliminating itemized deductions and increasing the standard deduction.

 

2017 may be the last year taxpayers can deduct taxes, medical expenses, and miscellaneous investment and job-related expenses.  So, making additional payments in these areas – such as making the 4^th Quarter estimated income tax payment in December 2017 instead of January 2018 and scheduling and paying for medical appointments, exams and treatment and paying job-related expenses before year end.  Of course, decisions should be made remembering the deductibility of medical and miscellaneous expenses is based on the 10% (now for everyone) and 2% of AGI exclusion. 

 

As we all know you can only deduct “itemizable” expenses if the total exceeds the applicable Standard Deduction.  While it appears that deductions for mortgage interest and charitable contributions will remain, the alleged “doubling” of the Standard Deduction could cause these expenses to provide no tax benefit in 2018 – so, if a taxpayer will be able to itemize for 2017 under current tax law, making an extra mortgage payment in December and making charitable contributions planned for 2018 in the last months of 2017 would be a good idea.

 

The “framework” does not give any indication if the current lower 0%, 15% and 20% tax rates for qualified dividends and long-term capital gains will remain in effect.  So, it is important for taxpayers to look at their investment activity for the year and their current portfolio and take maximum advantage of the lower capital gain rates, especially the 0% rate if applicable.  Taxpayers may want to consider selling stocks or mutual fund shares at a gain, and immediately buying them back, to lock in the lower tax rate on investment appreciation.  As we know, there is no “wash sale” limitations on sales that produce a net gain – only on transactions resulting in a tax loss.

 

And, as every year, we need to advise clients on year-end strategies concerning the sale of mutual fund shares related to the timing of year-end distributions and Net Asset Value changes, and college tuition and fee payments. 

 

FYI, the November issue of ROBERT D FLACH’S 1040 INSIGHTS includes my year-end planning recommendations.  A copy of this issue, sent as a pdf email attachment, is only $3.00.  Click here for details.

 

When the actual specific details of the framework’s “cocktail napkin scribblings” are finally released, sometime in November, we will have a better idea of what to recommend.  But we really cannot wait too long to send out the year-end planning letters and get our clients thinking about year-end moves. 

 

This year-end suspense regarding tax law has, unfortunately, become the norm in recent years.  Perhaps it would be a good idea to pass a law that requires tax legislation, other than emergency legislation relating to natural disasters and perhaps other unique situations, that would affect the following year (for example tax law affecting 2018 introduced in 2017) MUST be passed by August 31^st or September 30^th.  And one way to avoid late-year disaster-related tax legislation would be to make tax relief for “Presidentially-declared” natural disaster areas permanent.

 

So, what are your thoughts on this issue?

 

TAFN