Last Minute Year-End Moves to Make in Light of New Tax Law

President Trump signed the Tax Cuts and Jobs Act into law on December 22, 2017. As a result, many taxpayers are wondering what they can do to best position themselves for tax savings. There is a narrow window of time to perform last minute, year-end moves, but here are some to think about.

The Tax Cuts and Jobs Act will reduce tax rates for many taxpayers, effective for the 2018 tax year. Plus, many businesses, including pass-through entities, may see their tax bills cut. Consider deferring income into 2018 to take advantage of these future, lower tax rates.

  • Wait to convert your regular IRA to a Roth IRA.
  • If you’ve already converted a regular IRA to a Roth, you can undo the conversion by making a trustee-to-trustee transfer from the Roth to a regular IRA. The original conversion will be canceled out.
  • If you run a business that operates on the cash basis, hold off on billings until next year or late into 2017 so payments will be received in 2018.
  • If your business is on the accrual basis, you may be able to postpone completion of a job until 2018 or defer merchandise deliveries until next year. These actions would postpone your right to payment, and the income from the job or the merchandise, until next year.
  • If you are planning to make a deal with creditors to reduce debt, wait until January 2018 to push any debt cancellation income into 2018.

The Tax Cuts and Jobs Act will suspend or reduce many popular tax deductions in favor of a larger standard deduction - $24,000 for joint filers and $12,000 for single filers. Here’s how to use or claim current deductions before they are reduced or eliminated in 2018.

  • Pay the last installment of estimated state and local taxes before January 1, 2018. Individuals will only be able to claim an itemized deduction up to $10,000 for state and local property taxes and state and local income taxes in 2018.
  • Don’t prepay a 2018 state income tax bill in 2017.
  • Consider making additional charitable gifts in 2017. Charitable contributions after 2017 may not yield a tax benefit because taxpayers won’t be able to itemize this deduction in 2018.
  • If you won’t be able to itemize deductions after 2017, consider moving discretionary medical expenses into this year. Discretionary expenses can include dental work or new glasses.

The bill substantially increases the alternative minimum tax (AMT)  exemption to $109,400 from $86,200. Here’s what you can do.

  • If you hold any incentive stock options (ISOs), postpone exercising them until next year.
  • Push deductions such as depreciation and investment interest expenses into 2018. These types of deductions will be limited if you’re subject to the 2018 AMT.

For many years, businesses have been able to deduct 50% of entertainment costs directly related to or associated with the active conduct of business. This deduction will not exist under the Tax Cuts and Jobs Act. Consider entertaining clients and business associates before year-end.

Like-kind exchanges are a popular way to avoid current tax on the appreciation of an asset, but in 2018, these swaps will be possible only if they involve real estate that isn’t held primarily for sale. If considering a like-kind swap of other types of property, do so now.

The Tax Cuts and Jobs Act will suspend the deduction for moving expenses after 2017 and will also suspend the tax-free reimbursement of employment-related moving expenses. If you’re in the midst of a job-related move, try to incur your deductible moving expenses before year-end. Or, if you’re getting reimbursed by your new employer for the move, request the reimbursement be made to you before year-end.

These are only a few of the year-end moves that should be considered in light of the Tax Cuts and Jobs Act. If you would like more details, or if you have any questions, please contact your Beene Garter professional.