Maximizing Your Tax Benefits in 2017 Before the New Tax Plan Takes Effect
Introduction to Preparing for 2018
With the new tax plan set to take effect in 2018, it is crucial to take advantage of the current tax laws to minimize your tax burden in the coming year. This article will guide you through the best tax planning steps for individuals affected by the new tax laws. Whether you're thinking about state or local income taxes or property taxes, there are several strategic moves you can make to optimize your deductions before the end of 2017.
Understanding the New Tax Deduction Limits
The key change in the new tax plan is the limitation of state and local income tax (SALT) and property tax deductible for federal taxes. The total amount you can deduct for these taxes is capped at $10,000 for 2018. For individuals residing in states with high SALT, this cap may result in a significant loss of deductible amounts. Therefore, it is beneficial to take some of these deductions in 2017 instead of 2018. Additionally, the standard deduction is set to increase significantly starting in 2018. If this increase means you will opt for the standard deduction over itemized deductions, it's wise to maximize your itemized deductions in 2017.
Strategic Use of Pre-Paid Taxes
One way to benefit from these changes is by pre-paying certain taxes in 2017. For instance, if you owe property tax for 2018, you can pay it in 2017, and it will still be deductible for your 2017 federal taxes. Similarly, if you have not paid enough state and local income tax for 2017, paying the additional amount before the end of the year could be advantageous.
It's important to note, however, that you cannot pre-pay state or local income taxes for future years—only property taxes can be pre-paid. The tax bill explicitly prohibits shifting the deduction to 2017 for state or local income taxes not yet due.
Investment Income vs. Wage Income
In the context of tax planning, it's also wise to consider the type of income you earn. Earning money through investments rather than wages can potentially reduce your taxable income. For example, investments in tax-advantaged accounts such as 401(k)s or IRAs can lower your overall tax burden. Investing in tax-efficient assets can also help minimize your tax liability. Consulting with an experienced financial advisor can provide you with a personalized plan tailored to your specific circumstances.
Seeking Professional Advice
To fully optimize your tax situation, consider hiring a competent accountant or a tax attorney. They can help you navigate the complexities of the new tax plan, identify any new loopholes, and take advantage of strategies to reduce your tax burden. These professionals can guide you in making the most informed decisions regarding your taxes.
Conclusion
By understanding the new tax plan and strategically planning your deductions and payments, you can significantly reduce your tax liability in 2017. Whether it's pre-paying property taxes, choosing investments over wage income, or seeking expert advice, these steps can help you prepare for the changes in 2018.