Prep Now, Fret Less

Taxes

Prep Now, Fret Less

Don’t procrastinate when it comes to prepping for tax season.

December 15, 2017

The tax code is a labyrinth to navigate – even with careful planning. And this year, a new administration in the White House means some things are still up in the air as we approach year-end. Nevertheless, taking action now – while you, your financial advisor and accountant have time to think through the possibilities and maximize your 2017 tax savings – could be more than worth the effort. Consider adding one or more of these five tax-mitigating moves to your capital gain/loss harvesting and year-end charitable giving.

Tip 1: Defer your year-end bonus or postpone income

What Is It? Save on this year’s higher taxes by withholding your bonus or postponing income until next year when you may be in a lower tax bracket as a result of legislative changes.

Who Can Benefit? Those who think they’ll be in the same or lower tax bracket next year.

Tip 2: Accelerate deductions

What Is It? If you anticipate higher taxes this year, accelerate deductions (e.g., philanthropic donations, prepaid state income and property taxes) to get a larger percentage tax benefit. Bonus: Reducing this year’s adjusted gross income also may keep you under the 3.8% Medicare surtax threshold.

Who Can Benefit? For those who think they’ll be in a lower tax bracket next year

Tip 3: Accelerate income and/or postpone deductions

Who Can Benefit? Those who think they’ll be in a higher tax bracket next year

What Is It? If you anticipate higher taxes next year, perhaps due to an increase in income, accelerating income and postponing deductions may help reduce your 2018 tax bill. Consider selling assets at a gain, billing in advance or deferring deductions until next year.

Tip 4: Rack up depreciation deductions

Who Can Benefit? Those with profitable, closely held businesses

What Is It? The Section 179 expense deduction for up to $500,000 in qualifying equipment purchases, combined with the 50% bonus depreciation, can provide significant tax relief for any business projecting substantial taxable income. For example, if your business purchases equipment for $700,000, you would receive a total first-year deduction of $620,000.

Keep in Mind: The Trump tax plan proposes replacing the depreciation of assets with immediate expensing of the cost. Proposals also eliminate the interest expense deduction for businesses electing to immediately expense purchases. You may want to plan ahead with your accountant to determine whether to make large asset purchases now or defer them until 2018.

Tip 5: Be very generous

Who Can Benefit? High-net-worth families who want to donate significant amounts

Did you know you can use a credit card to make a charitable gift in December and you can still claim the deduction for 2017, even if you pay the bill in January 2018?

 

What Is It? Year-end charitable giving is a tradition for many families. If you want to make a generous charitable gift, consider doing so before year-end or establishing a donor-advised fund, which allows you to receive an immediate federal income tax deduction even if the funds will not be disbursed until later years. If tax rates do go down in 2018, you will receive a larger tax benefit from the deduction since tax rates could be higher this year.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James Financial Advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.



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