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ACM Journal - Investment Management
11 Oct

Tax Planning Time – Q3 2017 Newsletter

By Chris Cebula, CPA

As hard as it may be to believe, yearend is just around the corner, and that means it is time to think about tax planning. This year, it seems that year-end tax planning is facing a perfect storm of unknowns.

The house recently passed a $4.1 trillion budget, which some hope will be the start of a major tax reform package before yearend. The details of what that reform will ultimately look like aren’t clear. However, several popular deductions could be eliminated, radically altering the way we think about tax planning.

Historically, true tax reform has been a once-in-a-lifetime event. The last significant change to the tax code was in 1986 when President Reagan signed the Tax Reform Act into law. Prior to that, you have to look back to the 1954 enactment of the Internal Revenue Code. However, that doesn’t mean there haven’t been changes to the tax law. Since the most recent reform, the U.S. tax code has gone from 30,000 pages to over 70,000 pages. Accordingly, there has been much criticism of how unwieldy tax law has become.

Nevertheless, the question remains of whether tax legislation will pass this year, and if so, whether it will be sweeping and retroactively applied. As a result of these unanswered questions, some of the normal year-end tax strategies are up in the air. While it is not our preferred method, it seems that waiting until the last possible moment may be the best strategy for 2017.

That said, it is prudent to start thinking about some contingency strategies. One of the ideas being kicked around is a dramatic increase in the standard deduction, possibly up to $30,000 for joint filers, which could make this tax year, if not retroactively applied, the last year that some filers could itemize deductions for certain expenses, including charitable deductions. Depending how the law changes, it could make sense to accelerate charitable giving, perhaps through a donor-advised fund.

Also being discussed is the ability to deduct state and local taxes on your federal return. Again, if not retroactively applied, it may make sense to “prepay”, if possible, those taxes in 2017 so that they can be included on this year’s return.

Other strategies that may make sense include deferring income, including bonuses, and retirement distributions in excess of required distributions into next year, and waiting to delay Roth conversions.

In the meantime, it still probably makes sense to lower your taxable income by making contributions to qualified retirement accounts. For those working, and with access to 401(k) plans, that means maxing-out your contributions up to $18,000, plus a $6,000 “catch up” if you’re over age 50. For those with SEP IRA accounts or Solo 401(k)s, the maximum is $54,000. IRA contributions may also make sense depending on your circumstances.

The tax reform debate is just beginning, and with our sharply divided political environment, anything (or nothing) could happen. However, regardless of the ultimate outcome, there will be strategies that can help make your tax burden as efficient as possible. Give us a call if you would like to discuss how these strategies may apply to your personal situation.

To Download the complete 2017 Q3 Newsletter please click below.