While most of us are busy with holiday parties, we don't want to be bogged down by more things to add to our to-do list. But today the GOP takes its next step in its rush to pass sweeping tax reform to give 'great Christmas gifts' to the middle class (The bad news for us in the tri-state area (NY, NJ, CT), many of us are facing a potential tax increase thanks to the $10k cap on real estate or state and local tax deduction). It is therefore important for taxpayers, both personal and business, to be aware of the potential effect on their finances. Here are 3 actionable tips to take before year end to put you in a better position for the coming tax code changes.
First of all, the charitable deduction isn't going away. However with the higher standard deduction ($24k in 2018, up from $12,700 in 2017 for couples; $12k in 2018, up from $6,350 for singles), many people may no longer continue itemizing. The Tax Policy Center estimates that fewer than 10 percent of filers will opt for itemizing versus about 30 percent currently. Therefore, if you plan to itemize this year but not next, then it may make sense to pull forward some of your charitable giving.
Thanks to another strong year of gains in the stock market, investors have sizable unrealized capital gains. If you decide to make a charitable donation, you would be wise to donate stocks with significant appreciation, thereby eliminating the capital gains tax and yielding the charitable deduction.
Make your January mortgage payment early and pay real estate taxes if possible
Usually I recommend making mortgage payments as late as possible without penalty, however in this case, you could take advantage of a larger interest expense deduction for 2017 by pulling your January payment forward into the last week of December. This makes sense because tax rates will be cut the following year so the deduction will have a bit more impact this year.
If you pay your property taxes directly to the state, you should considering paying your entire 2018 tax bill before year end if you will be hit by next year's cap of $10,000. However if you're subject to the alternative minimum tax or close to it, you won't get a tax benefit for paying this bill in December, so there's no need to rush. Be sure to talk it over with your tax professional.
Pay down your home equity loan
Interest on home equity loans will no longer be deductible beginning in 2018 under the GOP tax bill. Like the mortgage, you may want to pay your January payment in December. Furthermore, as a result of the proposed change, home equity loans in general will be a bit more expensive to borrowers so you may want to consider paying them off sooner rather than later.
Considering that things can change quickly in Washington, you should continue to monitor the situation and how it affects your finances. You should also check with your accountant for advice on how the changes are likely to affect you.
Note that the Runnymede investment team will discuss our outlook on 2018 on our quarterly investment webcast in the next couple of weeks. If you are interested in attending, please email us at firstname.lastname@example.org.