Tax reform is in the news and it could be passed possibly before the end of this year. If it were to pass, here are some specific ideas that could help reduce your taxes. Be aware that these strategies would need to be implemented by the end of this year, if tax reform were to happen soon, and there’s not much time left.
Most likely the standard deduction will double; this would take a single filer from a $6350 standard deduction to $12,000, and a married couple would go from $12,700 to $24,000. The result is that going forward, most people would probably take the standard deduction instead of itemizing. This means you would want to use the rest of 2017 to maximize your itemized deductions, while it’s still worth it.
You could consider speeding up any charitable gifts you plan on making next year, by paying some this year in case you claim the standard deduction in 2018. You might also think about prepaying January’s mortgage payment in December and deduct the interest in 2017. And, depending on your circumstances, it might make sense to prepay your future state and local taxes.
Also, you get to choose between deducting income or sales taxes at the state and local level. For example, if you plan to buy a new car - or two, the sales tax could be big enough for you to write off the sales tax rather than state income tax. In this case you should make your car purchase this year in case you take the standard deduction next year.
The point is: it is when the payment is made that determines when you can deduct it. If the deduction goes away in 2018, then you would want to pay them now, before the end of the year, so you can still get a tax break.
This last idea doesn’t depend on new tax reform, but it can still help a business owner lower his/her taxes:
If you're a business consultant with no employees, there’s still time to open a solo 401k plan. If you have enough earned income, you could contribute $54,000 all tax deductible, plus if you're 50 years of age or older, you can put in an additional 6,000 as a catch up contribution. This comes to a grand total of $60,000 of your earned income that you can shelter from income taxes.
The key is you cannot be incorporated - if you are incorporated, the salary deferral going into this 401k has to come out of each paycheck. But if you are unincorporated, you can wait until December 31st, or your tax filing deadline, which for many would be April 15, 2018, and put the entire amount of the contribution in at one time. This could be a huge deduction for a semi-retired reason, working part-time as a consultant with no employees.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.