There has been a great deal of discussion concerning tax reform these days, and many people are putting tax planning on hold until they see what Congress is actually going to do. Since that could take a lot of time and we don't know if any changes will actually occur, it makes more sense to plan now and adjust later if the world changes. Focus on what you know and what you can control, and don't worry about any changes until they actually occur.
Don't wait until 1099s start arriving, to begin gathering your data for filing. The top priority and most important tax-planning advice is to file as early as possible to avoid tax-return identity theft. Have all backup data possible in early January so that when 1099s do arrive, you are ready to file.
One of the most important things you can do right now is to get a handle on a good, solid estimate of your current year's tax liability. Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. Estimated tax payments are due the 15th of April, June, September and January.
If you don't pay enough withholding and estimated tax payments, you may be charged a penalty for underpayment of estimated tax. In order to avoid an underpayment, each quarter you must pay 25 percent of the following: 90 percent of the current year's tax liability, or 100 percent of the prior year's tax liability (110 percent if you are married and make more than $150,000 per year, or if you are single and make more than $75,000 per year).
If you find that you have not paid enough to avoid penalties in the first few quarters, you may want to increase withholdings from income, such as your salary or a pension. Withholding is considered paid evenly throughout the year, even if it's done later in the year, so it is a good tool to help reduce or avoid penalties.
After you have a handle on what your tax picture looks like right now, you can look at ways to potentially reduce taxes. There are various strategies that can be employed to either reduce or defer your taxes, and a few are discussed below.
Accelerating deductions/postponing income. If you believe that you will be in a lower tax bracket in 2018 than you were in 2017, these strategies may work for you. Some steps to take to accelerate deductions include making any anticipated 2018 charitable contributions in 2017 and prepaying your property and state income taxes. Although you can't deduct prepaid interest, you can pay your January mortgage payment in December, because the interest due in January is interest due on December's loan balance.
Another option would be to sell some investments that have created a capital loss. You can take a net loss of $3,000 each year against ordinary income, with any excess being carried over to future years. If you own a business that has excess cash on hand, consider whether there is a need for any large purchases (think equipment or vehicles) that you may be able to expense in the current year.
On the income side, if you have any control over when a bonus or other income will be paid, put it off until January. If you are a cash-based business owner, delay billing a customer until 2018. Seriously consider maximizing that 401(k) plan contribution. Starting now, instead of in December, gives you more time to spread those deductions over multiple pay periods.
This strategy not only takes advantage of reducing taxable income in a high-bracketed year but also could bring you below some income thresholds that limit itemized deductions, disallow certain credits or subject you to the Net Investment Income tax.
Accelerating income/postponing deductions. If your income in 2018 is expected to put you in a higher bracket, these strategies may work for you. One step to take to accelerate income is to take that bonus now (or before year-end). Or take any planned retirement distributions (if not subject to the 10 percent penalty). You could also sell some investments to take some of those profits or accumulated long-term capital gains.
"One of the most important things you can do right now is to get a handle on a good, solid estimate of your current year's tax liability."
• If you are in a low tax bracket in a particular year, consider converting any traditional IRA to a Roth IRA. You will have to pay the tax on it now, but it will grow tax-free and you won't be taxed when you take distributions in retirement. It is also a great way to reduce those required minimum distributions. You can also change your mind up to a certain point later on and reverse the conversion.
• If you plan to gift money to an adult child who is in the 10 percent to 15 percent tax bracket, consider gifting him/her appreciated securities. When he/she sells, the capital-gains tax rate is zero percent. You can gift up to $14,000 in 2017 to any individual without gift-tax consequences. If married, your spouse can also gift that amount to the same person.
• Also, don't forget to use any money you have contributed to a flexible spending account. These accounts are "use it or lose it" accounts. Some employers have grace periods or the option to roll over $500 to the following year. Check with your employer.
• If you are paying education or medical costs for someone else, pay them directly to the educational institution or the medical provider. Direct payments are not counted toward your annual gift-tax exclusion.
• And when estimating your income in any given year, don't forget to consider whether you are subject to the alternative minimum tax — this can change everything.
— By Diahann Lassus, president and CIO of Lassus Wherley
Here are some investments that are fixed, keep up with inflation, don't have risk and are offered by insurance firms.
By understanding how one investment performs compared to another, you make better decisions about what's right for you.
Investors consume more info than can be processed so it's important to have a decision-making process for investments.
Congress' proposal to slash 401(k) contribution limit will affect the way American workers now save for retirement.
More From Active/Passive
A globe-trotting look at the world of investing, from developed Europe and Asia trends to the least-traveled frontier markets.
Coverage of the World Economic Forum’s annual meeting in Davos, Switzerland.
Unlock the keys to building a successful long-term financial plan: manage your money, grow your money, and protect it.
The S&P 500 will likely peak in 2029, with the index between 6,000 and 15,000, Thomas Lee of Fundstrat, says on CNBC's "Halftime Report."
This particular shutdown could be a precursor to a larger battle over the government debt limit.
ValueAct Capital is launching a fund focused on promoting environmental and social goals, according to a letter obtained by CNBC.
Bitcoin isn't new but the risks are not, so the same breakdown between risk and reward plaguing any investors apply.
There are steps women who achieve $1 million in 401(k) savings can take to ensure continued financial security.
Few people have time to comb through ETFs and mutual funds to build a custom asset allocation model.