Year-end tax planning can provide most taxpayers with a good way to lower a tax bill that will otherwise be waiting for them when they file their 2017 tax return in 2018. Since tax liability is primarily keyed to each calendar tax year, once December 31, 2017 passes, your 2017 tax liability for the most part— good or bad– will mostly be set in stone.
Year-end 2017 presents a unique set of challenges for many taxpayers because of current efforts by Congress and the Trump Administration to enact tax reform legislation, the scope of which has not been seen since 1986, according to supporters. Whether this ambitious plan will be successful by the end of this year remains uncertain; but the reasons to prepare to maximize any benefits if it does happen are indisputable. Both talk of lower tax rates, and fewer deductions, requires careful monitoring at this time, with “contingency” plans ready to go before yearend should these changes occur retroactively to 2017, or starting in 2018, either immediately or under phased-in schedules.
Tax reform, although important, is not the only reason to engage in year-end tax planning this year. Other changes in the tax law, made by the IRS and the courts, have already taken place in 2017. Opportunities and pitfalls within these recent changes —as they impact each taxpayer’s unique situation—should not be overlooked. This particularly rings true as we approach year-end 2017.
Life-cycle changes. External influences such as changes in the tax law, however, may be only part of the reason for taking some action before year’s end. Changes in your personal and financial circumstances — marriage, divorce, a newborn, a change in employment, a new business venture, investment successes and downturns—may require a change-in-course tax-wise since last year. As with any ‘life-cycle” change, your tax return for this year may look entirely different from what it looked like for 2016. Accounting for that difference now, before year-end 2017 closes, should be an integral part of your year-end planning.
Other developments: How tax law has changed over the past year by the IRS, the Treasury Department and the courts should be integrated into specific 2017 year-end considerations. This strategy-focused review of 2017 events includes, among many other developments critical to year-end transactions:
- Growing interest by the IRS in the responsibilities and liabilities of participants within the “sharing” or “gig” economy;
- Disaster relief both through legislation and relaxed IRS compliance rules;
- Changing responsibilities of individuals and employers under revised rules implementing the Affordable Care Act;
- Payroll tax credit option for small start-up companies otherwise unable to make full use of the research tax credit;
- Changing schedules for business tax incentives that have been temporarily renewed while others have been allowed to sunset;
- “Repair regulation” elections on equipment purchases to be made for the 2017 tax year; and
- The reset by the Trump Administration of certain rules affecting debt/equity issues, foreign income reporting, recourse partnership liabilities, and estate tax valuation issues, among others.
Timing rules. Timing, and the skilled use of timing rules to accelerate and defer certain income or deductions, is the linchpin of year-end tax planning. For example, timing year-end bonuses or year-end tax payments, or timing sales of investment properties to maximize capital gains benefits should be considered. So, too, sometimes fairly sophisticated “like-kind exchange,” “installment sale” or “placed in service” rules for business or investment properties come into play. In other situations, however, implementation of more basic concepts are just as useful. For example, taxpayers can write a check or can charge an item by credit card and treat these actions as payments. It often does not matter for tax purposes when the recipient receives a check mailed by the payer, when a bank honors the check, or when the taxpayer pays the credit card bill, as long as done or delivered “in due course.”
Please feel free to contact one of our Professional Tax Advisors if you have any questions about how year-end tax planning might help you save taxes. Our tax laws operate largely within the
confines of “the tax year.” Once 2017 is over, tax savings that are specific to this year may be gone forever.
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