Main Menu

6 Year-End Tax Planning Strategies


Early Saturday, Dec. 2, the U.S. Senate passed an overhaul of the tax code, which brings the bill one step closer to President Donald Trump. The legislation could make fundamental changes in the way individuals and their families calculate federal income tax. The same bill must be passed out of both chambers of Congress, so the Senate bill needs to now be reconciled with that of the House of Representatives.

There is still uncertainty over when tax reform will be implemented and which proposals from the bills will make their way into law, but there are still strategies individuals can implement before Dec. 31 that can reduce their 2017 tax liability.

1)   Make charitable donations. Neither the House nor the Senate bill would repeal the itemized deduction for charitable contributions. Since most other itemized deductions would be eliminated in exchange for a larger standard deduction ($24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for some. If you think you will fall in this category, consider accelerating some charitable giving into 2017.

2)   Accelerate “discretionary” medical expenses into this year. The House bill, but not the Senate bill, would eliminate the itemized deduction for medical expenses. If this deduction is indeed chopped in the final tax bill, and you are able to claim medical expenses as an itemized deduction this year, consider accelerating medical costs to 2017. For example, order and pay for new glasses, arrange to take care of needed dental work, or install a stair lift for a disabled person before the end of the year.

3)   Prepay state and local taxes. Both the House and Senate bills would eliminate the deduction for non-business state and local income or sales tax, but would allow an up-to-$10,000 deduction for real estate taxes on your home. If you expect to owe state and local income taxes when you file your 2017 return next year, consider asking your employer to increase withholding on those taxes. Additional amounts of state and local taxes withheld before the end of the year will be deductible in 2017. Similarly, pay the last installment of estimated state and local taxes for 2017 by Dec. 31 rather than on the 2018 due date.

4)   Sell investments at a loss to offset capital gains you’ve recognized this year. You may be able to lower your 2017 tax bill by selling investments that are now worth less than what you initially paid for them. You can offset the resulting capital losses against capital gains.

5)   Receive tax-free profit for sale of principal residence. If you're in the process of selling your principal residence and you wrap up the sale before year end, up to $250,000 of your profit ($500,000 for certain joint filers) will be tax free if you owned and used the property as your main home for at least two of the five years before the sale. However, under the House and Senate bills, the tax-free amounts would apply to post-2017 sales only if you owned and used the property as your main home for five out of the previous eight years.

6)   Make 2017 annual exclusion gifts. Even in a potentially changing estate tax environment, making annual exclusion gifts before year end can still benefit your estate plan. The 2017 gift tax annual exclusion allows you to give up to $14,000 per recipient tax free — without using up any of your gift and estate or generation-skipping transfer (GST) tax exemption.

Given the uncertainty over the timing and content of new tax legislation, it may be advisable to delay implementing year-end planning, if practical, until the tax reform picture becomes clearer. But don’t wait too long; some year-end strategies take time to execute.

Access our 2017-2018 Tax Planning Guide



Back to Page