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.