Articles & E-Books


Individual Year-End Tax Planning in Face of Potential Tax Reform

Dec 12, 2017

December is quickly coming to a close along with the final chance to do any significant tax planning before year-end. This year, however, the looming potential for individual income tax reform has created numerous uncertainties, making year-end tax planning more complex.

While the final version of the tax changes is unknown at this point and will not be effective until the two groups come to an agreement and the President signs off, that may happen too late for you to take advantage of year-end planning opportunities. Click here for a comparison of the current Senate and House versions of proposed tax reform (PTR).

The information below is intended to make you aware of steps you can take in anticipation of what the final tax reform outcome may be.

The Senate and House versions of PTR include potential changes to itemized deductions, including:

  • Increase of standard deduction to $12,000 for single taxpayers and $24,000 for married taxpayers
  • Elimination of deduction for all personal state income and sales tax
  • Elimination of deduction for all property taxes in excess of $10,000 per year
  • Elimination of deduction for medical expenses
  • Elimination of deduction for home equity loan interest
  • Elimination of deduction for all miscellaneous itemized deductions (for example, investment fees and employee business expenses)

Taxpayers not subject to AMT can potentially benefit from prepaying their state income taxes and their property taxes on or before December 31, 2017.

As a result of the proposed increase in the standard deduction in future years, you may also benefit from accelerating other itemized deductions into 2017. For example, prepaying your 2018 charitable contributions in 2017 would result in an additional 2017 itemized deduction and reduce your taxes. The same contribution made in 2018 may not result in a deduction, assuming your total itemized deductions (which may no longer include the items listed above) would be under $24,000 and you would be using this standard deduction as opposed to itemizing.

You should therefore consider prepaying the following items on or before December 31, 2017:

  1. All property taxes
  2. State estimated tax payment for the fourth quarter of 2017 (if making quarterly payments)
  3. One hundred percent of your projected 2018 state income tax obligations
  4. Charitable contributions for 2018
  5. Medical expenses (i.e., medical premiums, other outstanding medical bills)
  6. Miscellaneous deductions such as investment fees and employee business expenses when possible

As an example, assume you are in a 25-percent federal tax bracket in 2018 and you will not itemize in 2018. If you can move $20,000 of the various items noted above into 2017 as opposed to paying them in 2018, your potential permanent tax savings would be $5,000.

If you have specific questions, please contact your Wipfli relationship executive.