Look What's Coming: Tax Reform!

Posted: Updated:

President Trump and Congress are focused on completing a tax bill prior to year-end. Unfortunately, their timing may require quick action to implement a tax strategy in 2017 that can take advantage of the 2018 changes. What's a taxpayer to do?

It's practically mid-December and we still don't know what the tax landscape will look like in 2018. That makes it doubly difficult for 2017 tax planning. Will you receive a significant tax cut in 2018? Or, will you lose the tax deductions you now enjoy? What's the best course of action for not leaving money on the table when you don't know what's coming down the road? Here are some key points to keep in mind as you determine what tax strategies to implement in 2017.

Tax Rate Roulette

Until Congress passes the new tax law, gauging whether your marginal income tax rate will be higher this year or next year, may be difficult. But think about it this way: Do you want more net taxable income this year or next? If you think your 2017 tax rate will be higher than your 2018 tax rate, then searching for deductions in 2017 is an appropriate strategy. If you think your tax rate will be higher in 2018, you will want to consider pushing some of those voluntary deductions forward to next year to decrease your 2018 income.

This strategy could be especially important for pass-through businesses (businesses not subject to corporate tax). They could see their tax rates fall from 39.6 percent in 2017 to below 30 percent in 2018. Business owners should consider accelerating expenses into 2017 and delaying income until 2018. Using this strategy could save an extra 10 percent or more!

Gambling on Giving

A few years back, Congress passed a law in January regarding charitable contributions from IRAs and made it retroactive to December of the previous year. If you were clairvoyant and acted upon it before the end of the prior year, you were able to take advantage of the tax benefit. Anyone who couldn't predict Washington's actions was out of luck. Hopefully, that won't be the case this time round!

We recently wrote about ways you can make your charitable gifts more beneficial. Given the likelihood that the standard deduction will increase in 2018, many taxpayers will no longer be itemizing their tax returns after 2017. That means they may lose their itemized tax deductions from charitable contributions next year. This doesn't mean you should stop giving to charities. But it does mean you may want to give more this year to receive a tax deduction. I promise your favorite charitable organizations won’t mind receiving your money early!

Roth IRAs: Convert Now or Later?

If you convert Traditional IRA monies to a Roth IRA, you will pay ordinary income tax on the conversion amount. Therefore, the smart decision is to convert more monies in whichever year places you in the lower income tax bracket. For many taxpayers, this could be 2018. Regardless, of the year you convert your money, the best benefit is that once in the Roth IRA, your money grows tax free!

Your Heirs May Win

Currently, upon his or her death, each person can pass assets worth $5.49 million to heirs federal estate tax free. The new tax law proposal includes a significant increase in this amount. If your estate is worth more than $5.49 million ($10.98 for married people), holding off the Grim Reaper until after New Year's Day could save your estate thousands or even millions in taxes.

While no one likes to think about death - especially during the holidays - it is very important that you review your estate plan whenever estate tax laws change. So, put this on your list of "to-dos" for 2018.

Summary

All you can do in a situation like this is to give it an educated guess and adapt as more information becomes available. As always, you'll want to consult your tax advisor prior to implementing any tax planning strategies.

Bill Wendling, CFA, is a Senior Portfolio Manager with Bedel Financial Consulting Inc., a wealth management firm located in Indianapolis. For more information, visit their website at bedelfinancial.com or email Bill.

  • Perspectives

    • Expand Your Workforce to Include The Deaf Community

      While there are arguably many minority groups that are grossly underutilized in the workforce, I’d wager that most people do not consider the Deaf community when thinking about diversity and inclusion strategies. The Deaf community shares a unique culture that is closely networked, but few employers know how to tap into this community, which comprises 10 percent of the population. In fact, many people probably see barriers for the Deaf community when it comes to employment...

    More

Subscribe

Name:
Company Name:
Email:
Confirm Email:
HTML
INside Edge
Morning Briefing
BigWigs & New Gigs
Life Sciences Indiana
Indiana Connections
INPower
Subscribe
Unsubscribe

Events



  • Most Popular Stories

    • The Union Club Hotel was built in 1929. (photo courtesy of Purdue University)

      $30M Gift to Fund Purdue Hotel Renovation

      Purdue University says it plans to use a $30 million gift to transform an existing building into a world-class hotel. The gift from Bruce White, a Purdue alumnus and former trustee, his wife Beth, and the Dean and Barbara White Foundation, will fund the renovation of the Union Club Hotel, which will also serve as a laboratory learning environment for students. The university says the renovations will feature upgrades in furnishings, fixtures, and amenities for the hotel, as well as a...
    • PGA TOUR Superstore to Open in Indy

      A popular golf retailer will Saturday open its first location in Indiana. The PGA TOUR Superstore location in Indianapolis replaces the recently-closed Babies"R"Us location at the Clearwater Crossing Shopping Center.

    • (Image courtesy of Harrison College.)

      Milhaus Details Purchase of Harrison College Indy Campus

      Indianapolis-based Milhaus says it plans to build a 183-unit apartment complex on the same lot as the Indianapolis campus of recently-closed Harrison College. The development, construction and management company purchased the property last month for $6.3 million and Marketing Director Raven Reckley says the college's decision to close was "news to us." She adds Milhaus is "disappointed for the students and staff who are affected most" and will be evaluating...

    • Ribbon Cut on Downtown Fishers Housing

      The city of Fishers and Indianapolis-based Gradison Design-build have cut the ribbon on the first homes of a $30 million downtown residential development. The developers say the first section will have 20 homes, with a total of 50 coming over the next five years. Partner Joe Gradison says South Village of Nickel Plate gives residents high-demand housing options in a walkable, urban environment. In interviews with Inside INdiana Business Reporter Mary-Rachel Redman, Gradison and...

    • Indiana Hospitals Ranked Among Best in Nation

      U.S. News & World Report has released its annual ranking of the best hospitals in the nation. The publication includes state-by-state rankings as well as specialty rankings in 16 areas, including cancer, cardiology and heart surgery, and orthopedics.