Act Now to Save on Taxes before This Key Deduction is Lost

While Congress usually doesn’t accomplish much near the Christmas break, there are some indications that a new tax plan may reach the President’s desk before the end of the year. Even if an agreement is not reached until early January, it is likely that the tax bill would be made retroactive to January 1^st, and so effective for the entirety of 2018. Two key deductions may be going away or facing new limitations as a result of this tax bill, but there is action you can take before the end of the year to save money. It is always best to pay your taxes as soon as possible before year end.

Key Sections of Current Tax Proposals

Until final voting takes place, all proposed litigation is subject to change. However, both the House and Senate tax packages contain key changes to deductions. Specifically, both bills propose eliminating the deduction for state and local income taxes. This could result in significant changes for taxpayers, especially those in higher tax brackets, or property owners with high tax burdens.

Additionally, both House and Senate bills propose keeping property tax deductions in place, but limiting them to $10,000. For taxpayers with substantial real estate holdings, especially in states like Texas with no income tax, but higher property tax rates, this could present a significant increase in the Federal tax burden for those depending on this deduction.

How to Limit the Impact

It is possible that the bills could pass before the Christmas break, allowing the new tax code to take affect as soon as possible in 2018. Even if that turns out not to be the case, it’s highly possible that legislation approved next year may impact taxpayers retroactively, affecting potential deductions as early as January. Actions can be taken to limit the impact should the eventual tax bill affect these provisions. It may be wise to consider prepaying 2018 state and local income taxes, and claim the income tax deduction on 2017 Federal taxes.

Some states and localities allow prepayment of property taxes as well. If so, this would allow shifting the tax burden forward to 2017 to claim the deduction while it still exists without a cap.

Not all taxpayers affected by these changes will have the cash on hand to permit avoiding the potential impact of these changes. Nevertheless, for those able to do so, pre-paying tax bills in 2017 may allow for taxpayers to offset some of the proposed changes to the current tax laws.

Action Step

It is always best to pay your taxes as soon as possible before year end. If you delay your taxes until the New Year, you may find that it might not be as much of a deduction as you hoped. Contact Macino Financial Services at 419.491.0909 for a complimentary tax review.

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