2017 Year End Tax Planning – Last Minute Tax Tips

Although the House passed a tax bill, it still has to pass the Senate and be signed by the President in order for it to become law.

Although the House passed a tax bill, it still has to pass the Senate and be signed by the President in order for it to become law.


Wow, it’s hard to believe that 2017 is almost over!  The House has passed a new tax plan and the Senate is working on passing a different one.  I hate giving tax advice on tax proposals that haven’t been signed into law yet.  A bill has to pass the House, and the Senate, and be signed by the President before it’s actually a law.  If you need a refresher on just how that happens check this out:  School House Rock – I’m Just a Bill


So while there’s no guarantee that there will be a new tax law, if the current House proposal were to pass– many people could lose the ability to itemize their deductions in the future.


If you currently itemize your deductions, these tips are for you.  The idea is that you move as many of your normal deductions onto your 2017 tax return as possible.  This is a pretty normal strategy for people even when there is no threat of a tax law change.  Save on taxes now over saving on taxes later.  People do it all the time.  But with the potential for losing out on these deductions completely, it becomes a little more urgent.


The Deductions You Want to Push Forward:


State and Local Income Taxes.  If you already make estimated tax payments, you might have noticed that your 4th quarter payment isn’t due until January 15th of 2018.  But if you pay on January 15th – although the payment will apply to your 2017 state taxes, you won’t get to deduct it on your federal taxes until 2018.  But state income taxes might not be deductible in 2018!  So here’s a little trick:  move that payment up to December 31 or earlier – then you can deduct it on your 2017 taxes instead.  If Congress eliminates that state and local income tax deduction you still got your deduction.  If they don’t eliminate it – you just got it early.


But you don’t have to be an estimated tax payer to make this work for you.  If you know that you normally owe state income taxes, but you don’t normally make estimated payments, you can still make a 4th quarter estimated tax payment this year.  Pay in advance!  Let’s say you normally owe Missouri $200 at tax time.  It hasn’t been enough for you to bother with estimated tax payments.  That doesn’t mean you’re not allowed to do it!  If you know you;re going to owe, go ahead and make a 4th quarter estimated tax payment before the year is over so you don’t lose the deduction.


The same goes for your City taxes.  My office is in the St Louis area, many of my clients have to pay City of St Louis earnings tax.  Most wage earners just have the tax withheld from their paychecks and there is no balance due at the end.  But some people do have to pay that tax every year!  St Louis will let you pay in advance!  If you expect to owe, this is a good year to give the city her money early.


Charitable Donations.  Charitable donations are still going to be deductible under the new tax law, but with the loss of the state income tax deduction and the doubling of the standard deduction, many people will be claiming the standard deduction instead of itemizing in the future.  If you think you’ll be moving to the standard deduction, you might want to bump up your charitable giving this year instead of next year.


For example:  one of the charities I like, I donate to them with a monthly debit to my checking account.  For me, it’s easier to give a little every month rather than one lump sum.  But – it might make sense for me to give a lump sum before the year ends instead, that way I can claim the deduction in 2017 since I might not be able to claim it in 2018.


Mortgage Interest Payment.  Once again, if your house cost less than $500,000, you should still be able to deduct your mortgage interest payment under the new tax law.  But, like with the charitable donations, you might not be itemizing with the increased standard deduction.  It may make sense for you to make your January 2018 mortgage payment early so that you can claim it on your 2017 tax return.


Employee Business Expenses.  This is one of those deductions that appears to be on the chopping block.  If you have a job where you claim employee business expenses, you may wish to stock up on your office supplies and pre-pay some of your subscriptions and licensing fees if you can.


As I said before, I don’t know for certain what the final tax legislation will be.  If the current proposal passes, these tips will help you save some deductions that you would lose next year.  If nothing happens, the worst  is that you took your deductions in 2017 instead of 2018, and that’s not such a bad thing.


The Curmudgeon’s Guide to Year End Tax Tips for Real People

Happy New Year Flag 2012

Photo by Deborah Malec on flickr.com

If you Google “year end tax tips” you’ll get over 4 million entries. Granted, I’ve littered the field with a few of my own blog posts as well, but to be perfectly honest, most of those “tips” you find on the internet are pretty worthless to a “normal” taxpayer. I’m talking about regular people with W-2 type income or retirement money.

Now, forgive me if I sound a little cranky, but if you’ve waited until after Christmas to do any kind of tax planning, well, you’re a little late. Consider yourself scolded. And when you file your 2011 tax return, you’re going to plan ahead for 2012 like the intelligent person that you truly are. (I mean come on, you are reading my blog right? Obviously you’re attractive too!)

In the meantime, these are the top five last minute tax tips for non-business owners offered by the IRS. Note that the strategies are offered by the IRS, the commentary is from me. It’s not that the IRS suggestions are bad—they’re good suggestions, you just need to look with your eyes open.

  1. Charitable contributions – I love charities, I want you to donate to charity, but as a tax strategy, this might totally suck. If you are not already claiming itemized deductions on your tax return, then donating to charity probably will not help your taxes. Every year – seriously, every single year that I have prepared tax returns – I meet someone who donated to charity thinking it was a tax deduction and got nothing from it. The absolute worst case was a guy who donated his car, thinking he’d get everything back on his tax return. Wrong! He got nothing. Zero, zip, zilch, nada. (Although I understand that the woman at the charity who talked him into it was really pretty, although he didn’t get a date out of it either.) Donating to charity is a very good thing, but use your brain when donating. http://robergtaxsolutions.com/2011/12/charitable-donations-how-much-should-you-tithe-why-do-it/
  2. Energy efficient home improvements — The first thing you need to know is that the maximum credit you can get for this in 2011 is $500. If you’re doing the work anyway, great, but I wouldn’t go out of my way now to try for a tax credit this late in the game. http://robergtaxsolutions.com/2011/11/what-you-need-to-know-about-the-2011-home-energy-tax-credit/
  3. Portfolio adjustment — This is where you call your financial advisor and see if you need to do any tweaking before the end of the year. With the stock market being kind of crazy, you could have big gains or big loses. But don’t just go selling off stock, it’s important that you make sound financial decisions. I often have clients tell me that they sold losing stocks and they should be able to claim huge losses on their returns. Problem is, there may have been a huge loss during the year, but they’ll have a huge gain because they’ve held the stock for several years. Having your tax and financial person coordinate together is your best strategy. http://robergtaxsolutions.com/2011/08/five-tax-issues-for-these-crazy-financial-times/
  4. Max out 401(k) contributions — For the vast majority of us, we set up our 401(k) last November and can’t change anything. Personally, I’ve never worked for a company where you could walk into the HR department and say, “Hey, I want an extra $3,000 plopped into my 401(k) this week.” For those of you who are able to make last minute adjustments, you’ve got about 3 days. Anything going into your 401(k) must be in by December 31. http://robergtaxsolutions.com/2011/11/how-much-can-i-contribute-to-my-401k/
  5. Qualified charitable contributions seniors — This is for seniors who must make required minimum distributions (RMD). If you’re one of those people who takes your RMD at the very last minute, you can have your RMD go to a charity instead. This makes your RMD not taxable to you, and you don’t need to itemize to make it work. If you’re a senior and you do not need your RMD, and you have a charity that you really like, this is a perfect way to deal with it. http://robergtaxsolutions.com/2010/12/last-minute-tax-tips-for-seniors-ira-charitable-rollover/

Okay here’s the preachy part, I’m giving you fair warning. If you plan ahead, you don’t have to worry about last minute tax strategies. You’ve already figured out your best 401(k) contribution, you’d have already sent your qualified charitable contribution, and you’d have already spoken with your financial advisor about what your best strategy for the year is. It says this on my business cards, but it’s true—if you don’t have a tax strategy, then you’re probably paying too much. You don’t have to be rich and you don’t have to be a business owner to benefit from a little planning ahead. If your tax person isn’t helping you plan ahead for next year, it’s time for a new tax person.

EIC Tax Tips – Protect Your Child’s Identity

Protect yourself from identity theft. Don't let anyone have your child's social security card.

It’s hard to believe that someone would steal a child’s identity, but it happens all the time.


I’ve been posting a lot of last minute tax tips for people who have excess money to donate to charity or invest in retirement plans.  Somebody asked me, “What about the rest of us?  Do you have any good tax tips for people who don’t make a lot of money?”  To be honest, I don’t have as many tips there.  If you’re income is low enough that you wind up not paying income tax, you don’t need a lot of strategies for sheltering your income.   But that said, you do want to make sure that you protect what’s coming to you and I can help with that.


This is the time of year when I hear the question, “My son’s father wants to claim him on his tax return but he doesn’t have custody and doesn’t pay child support.  How can I stop him?”   Usually these questions are about the Earned Income Credit (EIC.)   When you combine EIC with the child tax credits, you can potentially have over $6,000 in tax refund money.  It’s no wonder that people fight over who claims the children.  Be sure to know the rules before you file.


In order to qualify to claim an Earned Income Credit, your child must meet three tests:


Relationship:  son, daughter, stepchild foster child, brother, sister, half brother, half sister, step brother, step sister or a  descendant of any of them, and


Age:  the child must be younger than the person claiming EIC and under age 19 (or under age 24 if a full time student) or be any age if permanently and totally disabled at any time during the year, and


Residency:  the child must have lived with the taxpayer in the United States for more than half of the tax year.  If you are in the military and stationed overseas, that counts as a temporary absence and you qualify as living with your child for the time that you are on active military duty.


The residency requirement is the one that’s going to prevent the absentee father from being allowed to claim the child.  Now that doesn’t mean he’s not going to try—there’s between $12 and $14 billion of EIC fraud every year.   But if you are the custodial parent, you should be claiming your child on your tax return.


Let me say something here are relationship.  “Stepchild” means that you married the child’s biological parent.  If you are just living with someone, even if you’ve been together for 10 years, you are not legally considered to be a “stepparent”.  A “foster child” means that the court placed a child in your home.  You have legal paperwork stating that you are the “foster parent”.  It does not mean someone that you care for and care about.  (At least not for IRS purposes.)


So how do you make sure that no one else claims your child on your return?


Protect your child’s identity:   I cannot stress enough how important it is for you to protect your child’s social security number.  Especially this time of year, there is a lot of child identity theft.  Most of the time, if someone steals your child’s identity, it’s someone you know, but I once dealt with a case where a thief was stealing baby ID’s from the hospital.  The tax windfall from an Earned Income Credit (EIC) can be pretty large, and it makes people do bad things.  If an identity thief has your child’s social security number, date of birth, and the correct spelling of the name, they’ve got you.  The social security card has two out of three.  Keep it safe.


If someone does claim your child illegally, (you’ll know because your tax return will be rejected when you try to electronically file it) fight back.  If you are in the right, go ahead and file your tax return exactly the way you’re supposed to; claiming your child and all the tax credits you are entitled to.  You will have to mail the tax return in and it will make for a horrible delay in processing your refund.  But the identity thief will get audited, you will win your case and you will get your money.   If you are not in the right, do not waste your time.  You will be audited too.  You’ll get 11 (sometimes 22) pages worth of questions you have to answer to prove you really do have custody of your child.  If you’re legit it’s easy, if not it’s a nightmare.


Some people will electronically file their return to get whatever refund they can first and then file an amended claim to add their child.  If possible, file the return correctly in the first place.  It gives you a stronger case in the IRS’ eyes and it will actually be processed faster than if you do the amendment.


One piece of advice I saw on a message board about this was to “Go ahead and file your return before he does, even if it’s wrong so that you beat him to it.”  Although filing your return as soon as possible will help prevent someone else from claiming your child, you need to know that it is illegal for a professional to e-file tax returns without having the actual W2s.  You’d be amazed at how often the final check stub is a little different from the actual W2.  Don’t file until you have everything you need.


In an ideal world, you wouldn’t have to be afraid of people stealing your child’s identity for financial gain.   We’re not dealing with ideal though.  Protect yourself and your child by keeping his social security card and other personal information safe.