Personal Finance

Make these 5 moves now before new tax law kicks in

Key Points
  • Big tax changes are coming your way in 2018, and this is your last chance to lower your tax bill or boost your refund come April.
  • Here are five moves to consider now to make sure you're taking advantage of tax breaks that may be changing or disappearing.
Make these money-saving tax moves before the tax code changes
Make these money-saving tax moves before the tax code changes

(Update: Since publication of this story, the IRS has released guidance related to the prepayment of 2018 state and local property taxes. The agency said people can only deduct prepaid property taxes that have already been assessed; prepayments of anticipated taxes will not be deductible.)

Year-end tax moves may be even more vital this year.

Passage of the GOP tax overhaul will mean big changes for taxpayers in 2018.

About 49 million taxpayers, or 28 percent, itemize their expenses for deductions, according to the Urban-Brookings Tax Policy Center. The tax legislation almost doubles the standard deduction. That change and the disappearance of several key itemized deductions mean it's likely even fewer taxpayers will itemize.

There is some level of simplification. But the downside is that there are certain things you are not going to be able to do anymore.
Tim Steffen
Baird Private Wealth Management

(Under the new legislation, an individual would need total itemized deductions to exceed $12,000, the tax bill's new standard deduction for individual taxpayers, up from the current $6,350. Married couples would need itemized deductions exceeding the new standard deduction of $24,000, up from a current $12,700.)

For taxpayers taking the standard deduction, "there is some level of simplification," said Tim Steffen, director of advanced planning at Baird Private Wealth Management. "But the downside is that there are certain things you are not going to be able to do anymore."

To that end, here are five tax strategies to consider now, for the final days of 2017:

1) Get ahead on tax obligations

The break for state and local taxes is substantially curtailed under the tax legisation. Beginning in 2018, taxpayers can claim a federal deduction of up to $10,000, total, for a combination of state and local income taxes, sales taxes and property taxes.

"For those that live in states with high state income taxes, that's a big hit," said Jill Fopiano, CEO of O'Brien Wealth Partners in Boston.

The final version of the tax overhaul specifically prohibits taxpayers from taking a deduction in 2017 for prepayment of 2018 state and local income taxes.

But if you pay quarterly estimated taxes, you can make your fourth-quarter payments by Dec. 31 (instead of the Jan. 16, 2018, deadline) and include those taxes paid as part of your 2017 deductions, said Howard Samuels, a certified public accountant at Samuels & Associates in Florham Park, New Jersey.

You may also be able to prepay your property taxes for 2018. Check with your local property tax collector's office to see what your municipality will allow. (The IRS released guidance on the issue Wednesday, saying that people can only deduct prepaid state and local property taxes if they were assessed in 2017. Prepayments of anticipated property taxes will not be deductible.)

"Some counties and municipalities will accept those tax payments earlier and others won't," said Tax Foundation economist Nicole Kaeding.

2) Boost charitable donations

How to give the most this holiday season
How to give the most this holiday season

The deduction for charitable contributions is unchanged in the tax overhaul. But you'll still need to itemize to claim it, and that's a much higher bar with the nearly doubled standard deduction.

Consider accelerating your donations to get the current tax benefit or using a donor-advised fund, John Voltaggio, managing director at Northern Trust, told CNBC earlier this year. A donor-advised fund allows you to make a charitable contribution and receive an immediate tax break for the full donation, and then recommend grants from the fund to your favorite charities over time.

Retirees age 70½ or older might also consider transferring money from their IRA to a qualifying charity. Such qualified charitable distributions can be a tax-efficient way of meeting your required minimum distribution.

3) Grab disappearing deductions

The tax overhaul does away with a long list of deductions and credits that filers may miss, including tax breaks for tax prep, unreimbursed employee expenses and job hunting expenses. (Under current tax law, the total of these expenses must exceed 2 percent of your adjusted gross income to be deductible. And those expenses are not deductible for the alternative minimum tax.)

PeopleImages | Getty Images

You can't accelerate all deductions, but you can take advantage of the break by paying for as many of those expenses as possible before the end of the year. For instance, prepay the anticipated 2018 fees for your tax preparer, if possible, and renew professional memberships that qualify as an unreimbursed employee expense.

4) Rethink a Roth conversion

If you converted funds in a pretax IRA to a post-tax Roth IRA sometime in 2017, now is the time to make sure you're satisfied with that decision.

Existing tax rules give retirement savers who make such a transaction time to change their mind and reverse course. (There are plenty of reasons you might, including a drop in the account's value or an inability to pay the tax bill.)

Ordinarily, you'd have until Oct. 15 of the year following the IRA conversion to undo it. But under the tax reform bill, there are no take-backs. Now, you only have until the end of this year to undo that conversion.

Ed Slott discusses how tax reform could affect your retirement savings
Ed Slott discusses how tax reform could affect your retirement savings

5) Defer income

The final tax reform bill still calls for seven tax brackets, but there are changes to the rates are well as the income levels associated with each bracket.

Taxpayers may find themselves in a lower bracket come next year. For example, a married couple with a combined income of $80,000 will be in a 22 percent tax bracket next year, compared with 25 percent (the 2018 bracket under current tax law, indexed for inflation).

Find your new tax brackets under the final GOP tax plan.

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 2018. The same goes for business owners, who also may have a lower impact on their business income next year, Steffen said.

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

On the other hand, if you are expecting to make more income and land in a higher tax bracket starting in 2018, accelerate your pay for this year. Ask for payments for work done in 2017 to be paid by Dec. 31.

–CNBC's Personal Finance team contributed to this report.

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