Tax Reform Bill - Year End Considerations

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The tax reform bill has passed and is now law. While it doesn’t go into effect until January 1st, we would like to highlight a couple of planning strategies that might be beneficial for a number of individuals before the end of 2017.

Essentially, there are two key strategies we have identified that are likely to be beneficial to many individuals as a result of the new law – if they can be done before January 1st:

1. Consider accelerating as many deductions as possible into 2017… such as the following:

  • Charitable contributions.
  • Payment of property taxes.
  • 4th quarter 2017 estimated state and local income taxes (note – 2018 state income taxes paid by the end of 2017 will NOT be deductible in 2017).

Why??? → Because the new law has lessened the likelihood of being able to write off commonly used deductions, and in some circumstances, has completely eliminated them. In addition, the new law has basically lowered the effective tax rates for most individuals in 2018.

2. Consider deferring as much income as possible into 2018… for example:

  • Individuals still looking to convert a Traditional IRA to a Roth IRA before the end of the year, may want to consider waiting until 2018.
  • Individuals who have already completed Roth IRA conversions in 2017, may want to consider recharacterizing back to a traditional IRA – in order to delay their conversion to 2018 or later (note – despite potential lower income tax rates in 2018, this strategy may not be beneficial if there has been substantial growth in your account since it was converted).
  • Where possible, consider delaying the receipt of bonuses and/or other sources of income until 2018.

Why???Because of the lower effective tax rates for most individuals in 2018.

While there are certainly a number of other factors and potential strategies to consider, in general, it is our understanding that many individuals would likely benefit by taking advantage of the two strategies listed above. As such, you may wish to consult with your tax advisor prior to making any changes – as each individual’s situation is likely to be different.

That being said, please feel free to contact our office if you would like to discuss your specific situation further. We appreciate the opportunity to continue assisting you with your financial planning needs… and wish everyone a very Happy New Year!