Another traditional recommendation for this time of year is to defer income. While salaried workers generally can’t choose when they get paid, business owners can often delay registering income until the following year, lowering their April tax bill in the process. Investors can also control their taxable income—and thus lower capital gains tax bills—by selling losing stocks or waiting to sell winning stocks until 2018. In most years, deferring income merely delays the taxes you will have to pay eventually. But, if you expect your tax rate to fall next year, deferring income into 2018 could actually save you money. (There’s also some good news for equity investors when it comes to the FIFO rule.)
3. Pay Your Taxes—If You Can
As we noted, the tax bill would limit how much state and local taxes (or SALT) individuals can deduct, to no more than $10,000 of a combination of property taxes and either income or sales taxes. The move by the Republican-controlled Congress was criticized by Democrats as an effort to make citizens of high-tax blue states pay for benefits to corporations and citizens of low-tax red states. As a result, advisors had been planning to instruct clients targeted by this provision to find ways to maximize their SALT deduction in 2017, by pre-paying next year’s taxes as much as allowed and deducting them under the old rules. But the final compromise bill, unveiled Friday by Republicans in the Senate and House, explicitly closes this loophole with respect to income taxes. Any 2018 state and local income taxes paid ahead of time would nevertheless need to be counted on next year’s taxes, according to the bill. However, taxpayers could still pre-pay property taxes due in 2018, and deduct them under the old rules. Additionally, any taxes due for 2017—or any late taxes from previous years—could still be deducted on a tax return due this April.
4. Employee Expenses
Current tax law allows employees to deduct unreimbursed expenses related to their jobs as long as they’re more than 2 percent of income. The tax bill ends these itemized deductions after the end of this year. So, workers should think about whether they can pay —and get the receipts—for as many of these expenses as possible this month, said Kathy Pickering, executive director of the Tax Institute at H&R Block in Kansas City, Missouri. Examples of unreimbursed expenses for employees might include tools and supplies, occupational taxes, work uniforms, union dues, and expenses for work-related travel. Self-employed people and business owners would still be able to deduct expenses under the new tax bill.
5. Pay For Your Move
Under the proposed law, you’ll no longer be allowed to deduct work-related moving expenses after the new year (unless you’re in the military). Of course it might be difficult to schedule a cross-country move on such short notice, but, “if you did move, make sure you clear up any moving-related expenses by Dec. 31,” said Fordham University accounting and taxation professor Stanley Veliotis. And if your destination happens to be a low-tax red state, maybe thank Santa Claus for your good luck.
6. Hire A Tax Preparer
After Jan. 1, individual taxpayers will no longer be able to deduct tax preparation fees. Any payments to accountants or tax software companies made this year, however, should still be deductible on tax returns filed in April. So, you might want to buy a tax software package now, or try to get an appointment with your CPA before the end of the year. Keep in mind that, like unreimbursed employee expenses, tax prep fees are deductions that only make sense if you itemize and if total miscellaneous deductions exceed 2 percent of your income.
This article was provided by Bloomberg News.