1. Give to Charity
This year, increasing your charitable giving could be even more effective. If your tax rate is falling in 2018, your deductions are more valuable if claimed against this year’s income. Giving to charity, is an effective way to increase your 2017 deductions if you itemize.
And even if your tax rate is going up next year under the new law, you may still want to make a bunch of charitable donations in 2017. Most deductions, including the charitable deduction, can only be claimed if you itemize your deductions on your tax return. The law will sharply limit the number of taxpayers who will benefit from itemizing: First, it raises the standard deduction from $6,350 to $12,00 for single people, and $12,700 to $24,000 for married couples. Second, it limits other deductions so it’s harder for taxpayers to reach the threshold where itemizing makes sense.
2. Defer Income
Another recommendation is to defer income. Although, salaried workers can’t choose when they get paid, business owners can often delay income until the following year and as a result, lower their April tax bill in the process. Investors can also control their taxable income by selling losing stocks or waiting to sell appreciated stocks until 2018. If you expect your tax rate to fall next year, deferring income into 2018 could actually save you money instead of merely delaying the taxes you will eventually have to pay.
3. Pay 2017 state income taxes and 2018 property taxes.
With the state and local income tax deduction capped at $10,000 even for those who itemize starting in 2018, everyone should pay all 2017 state income taxes and prepay 2018 property taxes to ensure a deduction for these dollars.
This means that anyone who pays quarterly estimated taxes should not wait until January to make their last state tax payment for 2017 – they should pay it before year end. It means that anyone who recognized meaningful capital gains in 2017 should make a tax payment to their state before year-end – not wait until April when taxes are filed.
4. Pay Employee Expenses
Current tax law allows employees to deduct unreimbursed expenses relating to their jobs as long as they exceed 2 percent of income. The new tax law ends these itemized deductions after the end of this year. Workers should think about whether they can pay, and get receipts, for as many of these expenses as possible this month. Self-employed individuals and business owners would still be able to deduct expenses under the new tax law.
5. Hire a Tax Preparer
After January 1, 2018, individual taxpayers will no longer be able to deduct tax preparation fees. Any payments to accountants or tax software companies made this year should still be deductible on tax returns filed in April. So, you might want to buy a tax software package now, or try to get an appointment with your CPA before year end. Keep in mind that tax preparation fees are deductions that only make sense if you itemize and if total miscellaneous deductions exceed 2 percent of your income.