With tax reform all but signed into law, there are big changes coming to individuals starting in 2018. For better or worse, there’s a lot of unpacking that still needs to happen, but here are some planning items that you can do right now to save you money.
High Level Summary of Tax Reform
Before we get into a few moves you can make right now to save you money on your taxes, let me first address why there’s such a rush. In general the new tax bill will increase the standard deduction drastically (from $6,350 to $12,000 for single filers, and $12,700 to $24,000 for married couples). That means that for many middle class families that were itemizing their taxes in the past, it may be more beneficial now to take the standard deduction instead. Of course, that all starts in 2018, so if you’ve itemized in the past you likely should continue to itemize in 2017. Many of the tax moves below essentially accelerate expenses that you can itemize in 2017, but may not be able to or may choose not to itemize in 2018.
Defer Your Income
If you’re a salaried employee, you may want to skip over this one since you most likely will not have the option to delay your paycheck. However, if you’re a business owner or have the option of when to accept payment for services, it may be beneficial from a tax perspective to delay that income until 2018. The tax brackets have been redrawn and rates have been lowered overall for 2018 through 2025 (unless extended by Congress), so chances are that income you bring in will cost you less in taxes next year.
Pay Your Property Taxes Early
If you’re a homeowner and have typically deducted property or real estate taxes as part of your itemized deductions, consider prepaying your 2018 property tax bill. The new law limits the amount you can deduct for property taxes and either state and local income tax of sales tax combined to no more than $10,000. While the bill does not allow you to deduct prepaid state and local income tax, it does permit prepaid property taxes to be deducted. Check with your municipality about paying these by the end of 2017. Not all localities permit prepayment, but to the extent possible moving this deduction to 2017 is one of the easiest ways to take advantage of the law change.
Make Your Charitable Contributions Now
Once again circling back to the change in the standard deduction amount, those charitable deductions that you have often relied on to bump up your itemized deduction may no longer matter in 2018. If you currently itemize and are thinking of making a contribution next year, consider cutting the check before the end of 2017. As long as you have a check dated before the end of the year and postmarked in 2017 that deduction will stand for this year even if it isn’t cashed by the organization until 2018. Just keep a copy for your records.
Maximize Your Itemized Deductions
Aside from prepaying your property taxes and making your charitable contributions early, take a look at your other itemized deductions on past tax returns to see if there is anything else you can move up to 2017. Common examples are tax preparer fees/the cost of a tax software package, medical expenses, moving expenses, or paying your student loan or mortgage bills early.
The Bottom Line
Every individual is different and tax reform will affect your bottom line differently from that of your neighbors or co-workers. The suggestions above are just that, suggestions. While they’re all great ideas for saving money on taxes, taxes are typically not the number one consideration for most families. Think about what works for you and your personal financial situation because most people don’t have money sitting around to prepay bills.
A Quick Programming Note
While this will be our last blog post for 2017, we have a lot more information coming your way in 2018. Stay tuned for more tax updates or send us a note to let us know what you want to learn more about. You can also subscribe to our newsletter for occasional updates. We wish you all a happy holiday from Budget Babble and we’ll talk to you next year!
UDPATE: Since this article was published, the tax reform bill was officially signed into law by President Trump.
Written By: Lindsay Dell Cook
Lindsay Dell Cook is a CPA and founder of Budget Babble. She lives in Philadelphia with her uber supportive husband and adorable daughter. When she's not working, she enjoys spending time with her family, taking their lovable mutt for walks, or reading a good book while buried under a pile of cats.