Personal Finance

6 year-end tax moves to make before reform lands

Key Points
  • Congress is working to resolve differences between the Senate and House versions of the Tax Cuts and Jobs Act.
  • The law, which Republicans hope to complete this month, would include significant changes to available tax breaks.
  • There are certain moves consumers can make now in anticipation of the changes.
How to give the most this holiday season
How to give the most this holiday season

Year-end tax moves may be even more vital this year — before tax breaks and other provisions change under the pending Tax Cuts and Jobs Act.

Senate Republicans pushed the latest version of their tax plan through early on Saturday. Senate and House lawmakers will now work to come up with one version of the bill, though they still have some differences to resolve.

There are some moves that individuals may want to consider making before the end of the year based on the revisions that are being considered. But experts warn that any moves should be made with the latest Washington happenings in mind.

"Make sure you're paying attention to what the latest versions of the bills are," said Tim Steffen, director of advanced planning at Baird Private Wealth Management.

Here are six areas where year-end tax moves are worth a harder look this year:

State and local taxes

Changes could be coming to the deduction for state and local property taxes. The latest version of the Senate tax bill would make up to $10,000 of these taxes deductible, matching what the House included in its bill.

You may want to consider making property tax payments for 2018 ahead of time, according to financial advisor David J. Haas, president and owner of Cereus Financial Advisors in Franklin Lakes, N.J.

"You might as well take advantage of it in 2017 while you can," Haas said.

Senate Majority Leader Mitch McConnell, a Republican from Kentucky, right, speaks during a news conference on tax reform in Washington, D.C., U.S., on Thursday, Nov. 30, 2017.
Andrew Harrer | Bloomberg | Getty Images

Individuals may also want to consider paying up their state income taxes this year, particularly if the deduction for those taxes is lost.

"Make sure your state taxes are fully paid before the end of the year," said Steffen at Baird Private Wealth Management.

If you are anticipating a balance due from your state income tax return, pay that, he advised.

But be aware as to whether paying those taxes in 2017 will trigger the alternative minimum tax, or AMT, a separate system for the treatment of income and deductions. If you would end up losing that deduction because of the AMT, then just pay the tax bill next year, Steffen said.

The AMT will be partially kept in place, according to the latest version of the Senate tax plan, though its initial version proposed repealing the tax completely.

Home equity loan

If you have a home equity loan, the interest might not be deductible next year.

Consequently, you will want to consider paying off what you can, Steffen said. Move that debt up the priority list if you are repaying multiple loans.

"That loan is going to be more expensive next year," he said.

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If you can control your income, particularly if you have commission-based earnings or are self-employed, it may pay to defer those earnings to next year.

"At multiple levels, the tax rate is going to fall," Steffen said. "If you can, maybe defer income into next year."

The same goes for business owners, who also may have a lower impact on their business income next year, Steffen said.


A proposal in the House bill would eliminate the ability to undo or "re-characterize" individual retirement account conversions. If you decided to move pre-tax IRA money to a post-tax Roth IRA account, you normally would have until Oct. 15 of the year following the conversion to undo the transaction.

But that rule could be altered, meaning you should decide by the end of December if you want to change your mind, Steffen said.

In addition, a "first-in-first-out" investment rule could be enforced with the Senate tax bill, which would require investors to sell their oldest shares first when they have acquired multiple blocks of shares over time. Often, those shares have seen the biggest gains.

As a result, you may want to select and sell investments this year while you still have more flexibility with your choice, Steffen said.

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What experts say you need to do to plan for tax reform

Medical expenses

The House version of the tax bill eliminates the medical expenses deduction. The latest Senate version of the tax bill, however, proposes lowering the threshold for the deduction to 7.5 percent of adjusted gross income, down from 10 percent. (That lower threshold is temporary, and would be in effect for 2017 and 2018.)

But you may not be able to itemize your deductions once a higher standard deduction is in place.

To that end, you may want to take care of as much of your medical needs as possible before the end of the year, Haas said. That applies to expensive medical procedures and prescriptions, as well as other costs such as orthodontia for your children.

"The orthodontist would love to be prepaid in December for all of the work he's going to do next year," Cereus' Haas said.

Charitable donations

This year might be the most advantageous to give to charity.

"This is purely a play on the fact that fewer people will be itemizing deductions," Haas said.

You may want to consider opening a donor advised fund, which lets you get a deduction up front on the money you put in and then decide on which charities get the money later.

If you're age 70½ and have funds in an IRA, you may want to consider making a donation directly from that account, Haas said.

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