Typically, we would say to “accelerate deductions and defer income". However, depending on how the new tax legislation progresses in the coming weeks, it may make sense to accelerate income into 2017. For now, however, we’ll stick with the idea to defer income and accelerate deductions. Here are some ideas:
Contribute the legal maximum to retirement plans for 2017:
Traditional, Roth, or Custodial IRA: $5,500 ($6,500 if you're 50 or older).
SEP-IRA, Qualified Retirement Plans: Lesser of $54,000 or 25 percent of compensation.
401(k): Salary deferral of $18,000 ($24,000 if you're 50 or older).
Take advantage of any employer tax benefits offered
Including Health Spending Accounts (HSA), Flexible Spending Accounts (FSA), and Dependent Care Benefits.
Contribute to education funding plans
Make contributions to 529 education funding plans because they efficiently shelter income on college accounts. We'd be happy to help you set up accounts or determine how much you should add to them.
Utilize education credits
Generate income or capital gains for any college-level children before year-end to utilize non-refundable education credits, if they are available.
Social Security benefits for December will increase in 2018 due to inflation
For family members with lower income who are subject to Social Security tax, accelerate income into 2017 to possibly reduce Social Security taxes next year. The limit on earnings subject to Social Security taxes will increase from $127,200 in 2017 to $128,700 in 2018. Note that Social Security benefits for December (which are paid in January) will increase by 2% in 2018 for inflation.
Bunch itemized deductions into certain years
Properly time your state income and real estate taxes, large charitable contributions, and non-life-threatening medical expenses, possibly saving you taxes if bunched in certain years. Since your itemized deductions may be limited due to your income, multi-year tax planning may make sense to determine how much to pay of the items subject to the limitation. By bunching certain deductions in certain years, you may be able to clear the limitation amounts and reduce your taxes.
Note that under the plan now working its way through Congress, deduction of state and local taxes could be largely curtailed or eliminated for 2018. This may make it advantageous to pay all of your real estate taxes in 2017 instead of waiting to make the second installment in April. However, this will also depend on your positioning with the Alternative Minimum Tax. Given the complexity, it may be important to do some year-end tax calculations to make the right decision.
Review any vested stock options
Review any vested stock options for year-end tax planning opportunities.
Establish a Donor Advised Fund
Establish or add to a Donor Advised Fund (DAF) if you're feeling charitably inclined and your income is high in 2017. We’ll be happy to discuss this with you before the end of the year. DAF's allow you to bunch charitable contributions into one tax year (maximizing the charitable deduction) while spreading the distributions to charities over future years.
Make charitable contributions using appreciated assets
Make your charitable contributions with long term appreciated assets whenever possible, instead of using cash. Giving securities directly to a charity (or Donor Advised Fund) not only avoids capital gains taxes but also helps minimize your Adjusted Gross Income (AGI).
Accelerate business deductions
For self-employed individuals, accelerate business deductions into 2017 to defer net taxable income. Note that the current legislative proposals could significantly increase certain business deductions next year.
Roth IRA conversion
Consider a Roth IRA conversion, if your income is lower this year, to benefit from a lower tax rate.
Planning a move out of state?
If you’re moving out of state, plan the timing of certain transactions around your move date to be the most tax advantageous.
Make qualified charitable distributions (QCDs) from your IRA
Make Qualified Charitable Distributions (QCDs) from your IRA. By making distributions of up to $100,000 directly from your IRA to a charity, you avoid including the IRA distribution in your income. This helps to reduce your AGI which is used in many limitations, lowering your taxes and sometimes, if applicable, Medicare premiums.