As we approach the end of the year, many of our clients like to take a fresh look at their tax and financial plans. With Congress currently considering major tax changes, this exercise might be even more important this year. Part of these changes could be dramatically lower individual and business income tax rates in 2018. Traditional year-end tax planning involves trying to defer income from 2017 into 2018 and accelerating the payment of tax deductible expenses from early 2018 into 2017, resulting in a lower 2017 tax bill. With the possibility of higher tax rates this year than next year, these strategies can be more powerful. Here are some ideas:
- If you are entitled to a year-end bonus, see if your employer can delay giving it to you until January, 2018.
- For small businesses, delay year end billings and collections until early next year.
- Delay sales of stocks and other investments until January.
- Prepay state tax liabilities, e.g., property and state income tax, in December. This may have more significance if Congress is successful in eliminating these deductions in 2018 as they have proposed.
- “Harvest” capital losses in December to offset any 2017 capital gains that you have already realized.
Before undertaking any of these strategies, be sure to “run the numbers” – some of these ideas may not make sense based on your personal tax situation, e.g., your susceptibility to the alternative minimum tax (“AMT”). Your Lavelle & Finn tax advisor can discuss these – and other – strategies with you at your convenience.