4 Tax Moves To Consider Before December 31


In 2018, taxes will look very different. The corporate tax rate is falling, federal income tax brackets are moving, and there are big changes to your ability to itemize deductions, including mortgage interest and state and local taxes (SALT).

This has led to a flurry of end-of-year activity, particularly in places most affected by SALT deductions. For instance, the governor of New York took emergency action last week to allow state residents to prepay property taxes in 2017.

There are four days left in 2017. Is there anything you should be doing before midnight on December 31? Here, financial planners offer advice:

Prepay your taxes if you can. “Consider prepaying the property taxes for tax year 2018 in 2017 if your local tax authority will allow it,” says Wade Chessman, a financial planner in Dallas. “This will be especially true for people who itemize today but won’t be able to because of the higher standard deduction going to 2018, and also could be helpful for people who pay a large amount of property taxes and will have their total amount that is deductible next year reduced.”


A caveat: Check with your local taxing district to see if prepayment is allowed, and if prepayment will prohibit you from contesting any value increase in 2018.
Wait on that Roth conversion. If you were thinking of doing a Roth conversion before year end, take your time. “Wait until 2018 when rates will be lower,” says Ryan Fuchs, a financial planner in Frisco, TX. “Also, consider recharacterizing a Roth conversion that you’ve already done.”

Get a jump on charitable contributions. If you are someone who is donating to charity in order to itemize deductions in 2017, will take the standard deduction in 2018 and are anticipating making charitable donations in 2018, consider making 2018 contributions before December 31. “While charitable donations will still remain deductible under the tax reform, some historical itemizers may find it more beneficial to take the standard deduction due to the fact that it will be doubling,” says Alexander Rupert, a financial planner in Cleveland, OH. “Donating any 2018 earmarked funds before 2017 year end will provide a larger benefit in an individual’s 2017 taxes who are anticipating not itemizing in 2018.”
If you know you want to give to charity in 2018 but you aren’t certain where you want the money to go, set up a donor advised fund, suggests Evan Beach, a financial planner in Alexandria, VA.  A donor advised fund allows you to give a lump sum this year (and take the deduction), but dole the money out at your leisure in the future, to the causes of your choice.

Make an extra HELOC payment. If you’re sitting on a balance on a home equity loan or line of credit, write an extra check this year, or go ahead and pay it off, suggests Theresa Rosen, a financial planner in Sudbury, MA. There will be no more deductions in 2018 for HELOC interest, so whatever you leave for the future won’t lend you any tax benefit.

Planners are also talking to clients about refinancing home equity loans to home mortgages, says Scott Bishop, a financial planner in Houston, since some mortgage interest will still be deductible going forward.

If you're not sure how tax changes are affecting you, try this tax calculator to get a feel for your 2018 situation.
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