SUMMIT, NJ - Tax legislation may be unsettled, but there is still have time to reduce one's 2017 tax bill. So says Claire Toth, Vice President and C.O.O. at Summit-based Point View Wealth Management. She directs individuals to make a series of moves quickly, before the year end, including:
Contribute the Maximum to Employer Retirement Plans. Anything that is contributed to a traditional 401k, a Health Savings Account, or a Flexible Spending Account never comes into income. 401ks appear to be safe under whatever tax bill is enacted, but HSAs and FSAs may be at risk.
Prepay State and Local Taxes. Depending on whose version of the tax bill one is reading, their 2018 property tax deduction may be limited to $10,000, or it may go away altogether. As of this writing, individuals won’t be able to deduct state income taxes at all under either the House or the Senate version of the tax bill. That means to prepay what state taxes they are able: pay fourth quarter state estimated income taxes this month. If individuals typically find themselves owing state taxes in April, boost that prepayment. For those paying property taxes directly, make first quarter 2018 payments early. If their mortgage is held by a local bank, ask it to prepay those taxes. It likely will not, but those who don’t ask, it can’t get a 'yes'.
Give to Charity. Individuals at least 70-1/2 years of age and who have not yet taken their entire required minimum distribution from an IRA should consider giving some or all of it to charity -- that keeps the distribution off their tax return entirely. Not in that situation? Donate appreciated stock and avoid paying capital gains.
Generate Capital Losses. Investors can offset recognized capital gains dollar for dollar with capital losses. Better yet, they can use up to $3,000 of losses in excess of total gains against ordinary income. Aim to end the year with a net $3,000 capital loss. Any loss in excess of that can be used in future years. Bought some stocks in multiple lots? Under the Senate’s version of the tax bill, individuals won’t be able to choose which shares to sell in future years -- they’d have to sell in the same order purchased.
Accelerate At-Risk Deductions. The House and Senate versions of the tax bill propose to eliminate a multitude of useful deductions, and it’s not clear which of them, if any, will ultimately survive. If one may currently be eligible for any of them, they should prepay what they can this year: the deduction for medical expenses to the extent they exceed 10 percent of adjusted gross income, the deduction for student loan interest (at least make January’s payment this year), the teachers’ deduction for out-of-pocket purchases of school supplies.
Consider a Roth IRA Conversion. Under current law, those making a Roth IRA conversion from a traditional IRA have until the day they file their tax return to undo some or all of it. This can be useful if the investments they converted lost value or if the conversion puts you in a higher tax bracket than you anticipated. The tax legislation may eliminate their ability to undo that conversion -- take advantage of the flexibility while one can.
Finalize that divorce. The tax legislation may negatively affect the tax treatment of alimony. If so, it would only apply to divorces finalized after 2017. Wrapping up the divorce -- or at least getting the order entered -- this year gives the parties more wiggle room in dividing the financial pie.
For more information, call Toth at 908-598-1717 or contact firstname.lastname@example.org with any questions or to discuss how this might impact one's financial situation.
Point View Wealth Management is located at 383 Springfield Avenue in Summit and has, by CNBC, been named one of the Top 100 fee-only wealth managers in America.