4 tax strategies before Jan. 1 to lower your tax bill under the new tax law
- Give more to charity in 2017. Have you been meaning to donate? If so, get it done by year’s end. It helps reduce your income this year when tax rates are higher. Plus, you might not end up itemizing next year since the standard deduction is nearly doubling. If you take the standard deduction in 2018, you won’t get any tax savings from your charitable contributions.
- Make your business expenses now. If you pay union dues or a professional society membership fee (e.g. a chamber of commerce or bar association) or buy a lot of supplies for your job (e.g., professional musicians buying new instruments) that you normally deduct on your taxes, you’ll want to buy everything you can by year’s end. At the moment, people who are classified as employees can deduct a lot of their unreimbursed business expenses on their taxes if the total is more than 2 percent of your adjusted income. But that deduction is going away entirely in 2018.
- Max out as many other deductions as you can. The general rule of thumb is: Try to take the credit or deduction in 2017. For example, teachers can get up to a $250 credit for buying supplies for their students. That’s not going away, but it’s still more valuable in 2017 than next year. Also put more money into your 401(k) or IRA retirement plans if you have the chance. Another tactic is to try to prepay your home-equity loan interest. That deduction goes away next year, so it’s worth calling your bank and seeing if you can prepay at least some of the interest so you can get the tax savings in 2017. Another deduction that’s going away in 2018 is for tax preparation services. Ask your accountant now for the invoice they would normally give you in April after they file your tax return. If you can pay it now, you can still deduct it.
- Delay income until 2018 (if possible). It’s also a good idea to try to delay income until January when the tax rates are lower, especially if you are a small-business owner. So if you are chasing up some customers or clients to pay the bill you sent them awhile ago, you might want to wait until January to really get aggressive on collecting. In addition to lower tax rates, small business owners get a generous benefit starting next year of being able to deduct 20 percent of their business income tax-free.
Finally, there are quite a few tax items you don’t need to stress about. Republicans considered a lot more changes to the tax code that would have affected the middle class. But in the final bill that went to Trump’s desk, there are no changes to the student loan interest deduction, the extraordinary medical expense deduction, the teacher classroom supply credit, the electric vehicle credit, the tuition waiver for graduate students and the capital gains rules on selling your home.