year-end tax planning

Year-End Tax Planning in Uncertain Times

There is always a certain degree of guesswork that goes into year-end tax planning, but this year there is the added uncertainty surrounding what the tax code will look like after Washington completes the overhaul of our tax system.  The income tax rates for many individuals and businesses may decrease; the definition of income subject to tax may change considerably as well.  Many itemized deductions that we have become so used to, such as the deduction for qualified medical expenses, state and local income taxes and real estate taxes may be eliminated.

However, if the resulting new rules resemble the proposals, there will be a doubling of the standard deduction and the possible elimination of the controversial Alternative Minimum Tax.  Below are some tax-planning suggestions, including suggestions related to charitable gifts, which consider both the typical year-end planning techniques as well as planning for a potential overhaul:

  • The current proposals will not allow for itemized deductions in 2018 of unreimbursed medical expenses.  Taxpayers should consider scheduling elective vision, dental, and additional medical procedures in 2017 and pay for these items prior to year-end.
  • IRA owners over the age of 70 ½ can explore making their charitable contributions directly from their IRA accounts to designated charities in 2017.  Subject to limitations, the distribution will qualify towards the taxpayer’s annual required minimum distribution but is not included in their Adjusted Gross Income.
  • Maximize the 2017 funding of an IRA, 401(k), Profit Sharing plan or other Defined Contribution Plan contribution, if your 2017 tax rate will be higher than your 2018 rate and before the maximum contribution amounts may be reduced
  • Consider pre-paying state and local income tax and real estate tax liabilities for 2017 before year-end (so long as you are not subject to the Alternative Minimum Tax) as these deductions may be eliminated for payments made in 2018.
  • Contributing appreciated securities held for more than one year directly to a charity is more efficient than selling the security and contributing the proceeds.  The advantage of using this method is that a lower AGI (that does not include recognition of the gain on the sale) will result in lower AGI related computations.  Taxpayers get to deduct the fair market value of the security when contributed, subject to annual AGI limitations.  Contributions made in excess of the limitations may be carried forward to subsequent years.

There are many other issues to be considered and each person’s tax situation is unique. Please note that the Arthritis Foundation does not provide legal, tax or accounting advice. We encourage you to consult your personal financial, estate and/or tax advisors before making such decisions, including specific charitable gift arrangements.  For more information and helpful tools, please contact our Planned Giving Department at legacy@arthritis.org, call 866-528-8687 or visit www.arthritislegacy.org.

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