Expertise Beyond the Numbers

2017 Year-End Tax Planning – Preparing for Potential Changes in 2018

As the leaves start to change in preparation for winter, it is time for us to start preparing for year end and upcoming tax season.  Thoughtful tax planning can help lower taxes in the current year and, if done properly, can help in the following years, as well.  Each taxpayer’s situation is different and planning should be tailored to reflect your personal circumstances.  However, the traditional approach of deferring income and accelerating deductions to minimize taxes may prove to be even more valuable in 2017 if Congress succeeds in enacting tax reform that reduces tax rates beginning in 2018 in exchange for slimmed-down deductions. Potential planning strategies could contain the following:

Individuals:

  • Realize losses on stock while substantially preserving your investment position.
  • Consider converting traditional IRA money invested in beaten-down stock or mutual funds into a Roth IRA or consider re-characterizing (elect to treat a contribution made to one type of IRA as made to a different type of IRA) by transferring the converted amount from the Roth IRA back to a traditional IRA.
  • It may be advantageous to arrange to defer a bonus that may be coming your way until early 2018.
  • Consider increasing your withholding of state and local taxes (or pay estimated tax payments) before year-end to pull the deduction of those taxes into 2017.
  • You may be able to save taxes by applying a bunching strategy to pull miscellaneous itemized deductions, medical expenses, and other itemized deductions into this year.
  • You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction for 2017.

Businesses:

  • Consider capital expenditures that qualify for Code Sec. 179 For tax years beginning in 2017, the limit is $510,000 and the investment ceiling limit is $2,030,000.
  • Consider buying property that qualifies for the 50% bonus first year depreciation if bought and placed in service in 2017 (the bonus percentage decreases to 40% in 2018).
  • Businesses may be able to take advantage of the “de minimis safe harbor election” to expense the costs of lower cost assets and materials and supplies.
  • Businesses contemplating large equipment purchases also should keep a close eye on the tax reform plan being considered by Congress. The current version contemplates immediate expensing, with no set dollar limit, of all depreciable asset (other than building) investments made after Sept. 27, 2017, for a period of at least five years.
  • A corporation should consider deferring income until 2018 if it will be in a higher bracket this year than next. This could certainly be the case if Congress succeeds in dramatically reducing the corporate tax rate, beginning next year.
  • To reduce 2017 taxable income, consider disposing of a passive activity in 2017 if doing so will allow you to deduct suspended passive activity losses.

These are just some of the year end steps that can be taken to minimize your tax liability this year.  Speaking with your tax advisor early to formulate a plan for you or your business is the best first step to saving taxes in 2017. Stay tuned for updates as SC&H Group’s Tax experts will be hosting a Year-End Tax Planning Webinar in early December!