Year-End Tax Planning in Uncertain Times

Year-End Tax Planning in Uncertain Times

Perry A. Shulman, CPA

Elizabeth Forspan, Esq.

 

There is always a certain degree of guesswork that goes into year-end tax planning.  This year, with the uncertainty surrounding what the tax code will actually look like after Washington completes the overhaul of our tax system, the guesswork is, to borrow a word from our President, HUGE.  The income tax rates for many individuals and businesses may decrease.  However, the definition of income subject to tax may change considerably as well.  Many itemized deductions that we have become so used to, such as the deduction for qualified medical expenses, state and local income taxes, real estate taxes and miscellaneous itemized deductions may be eliminated.  However, if the resulting new rules resembles the proposals put forth by the President, there will be a doubling of the standard deduction and the possible elimination of the controversial Alternative Minimum Tax.  Below are some tax-planning suggestions, which consider both the typical year-end planning techniques as well as planning for a potential overhaul:

 

  • Consider deferring the recognition of income from a higher tax rate year to a lower tax rate year.
  • Business expenditures and equipment purchases made in a higher tax rate year may result in greater tax savings than if made in a lower tax rate year.
  • Maximize the 2017 funding of an IRA, SEP IRA, 401(k) plan, Profit Sharing plan or Defined Benefit Plan contribution, if your 2017 tax rate will be higher than your 2018 rate and before the maximum contribution amounts may be reduced. A “Qualified Plan” (Profit Sharing plans, 401(k) plans and Defined Benefit Plans) established by an employer to provide retirement benefits for its employees and their beneficiaries must be established by December 31 or the end of the business’ fiscal year, of the year in which the contributions are to be deducted.  SEP IRA’s must be established by the employer’s tax filing deadline including extensions.
  • Consider pre-paying state and local income tax liabilities for 2017 before year-end so long as you are not subject to the Alternative Minimum Tax, as this deduction may be eliminated for payments made in 2018. This prepayment may be accomplished through employer payroll or retirement plan distribution withholding or through estimated income tax payments.
  • Consider pre-paying real estate tax liabilities before year-end so long as you are not subject to the Alternative Minimum Tax, as this deduction may be eliminated for payments made in 2018. Many real estate tax bills for the first half of 2018 have already been distributed.
  • Consider paying current itemized deductions and other expenses with a credit card prior to December 31. The expense may be deductible on your 2017 return while you may delay making the payment to the card issuer until 2018.
  • The current proposals will not allow for itemized deductions in 2018 of unreimbursed medical expenses in excess of the 10% of Adjusted Gross Income (“AGI”) limitation. Taxpayers should consider scheduling elective medical, vision, dental, and acupuncture procedures in 2017, enroll in stop smoking programs, purchase prescription glasses, and pay for these items prior to year-end.  Once the 10% limitation is met, health care bills may be deductible.  The above-mentioned credit card payment rule applies here as well.
  • Survivors of Hurricanes Harvey, Irma or Maria may be entitled to special tax relief including less restrictive casualty loss rules and access to retirement funds. In addition, taxpayers may also want to settle insurance or damage claims this year in order to maximize the 2017 casualty loss deduction.  This type of itemized deduction may be unavailable in future years.
  • IRA owners over the age of 70 ½ can explore making their charitable contributions directly from their IRA accounts to designated charities. Subject to limitations, the distribution will qualify towards the taxpayer’s annual required minimum distribution but is not included in their Adjusted Gross Income.  The advantage of using this method is that a lower AGI will result in lower AGI related computations.
  • The reduction of “net investment income” (unearned income) through deferral from 2017 to 2018 may result in the decrease of the 2017 net investment income tax (potential savings of an additional 3.8% on certain income).
  • Contributing appreciated securities held for more than one year directly to a charity is more efficient than selling the security and contributing the proceeds. The advantage of using this method is that a lower AGI (that does not include recognition of the gain on the sale) will result in lower AGI related computations.  Taxpayers get to deduct the fair market value of the security when contributed, subject to annual AGI limitations.  Contributions made in excess of the limitations may be carried forward to subsequent years.
  • Gifts made to individuals before year-end that are sheltered by the annual exclusion (currently $14,000 per donee) are not subject to gift taxes and will reduce the value of an estate. Gifts can be given to an unlimited number of individuals, which can significantly help reduce the size of your taxable estate for both state and federal estate taxes.  The annual exemption amount for 2018 will be increased to $15,000 per individual.

 

Perry A. Shulman, CPA is the Managing Partner of his highly respected East Rockaway Long Island based tax consulting practice.  He advises high-net-worth individuals, business owners and entrepreneurs in various areas including income and estate and trust planning and administration.  Mr. Shulman addresses professional organizations and has been quoted in various national news and professional publications.  Perry may be contacted at [email protected].

Elizabeth Forspan, Esq. is the Managing Attorney of Ronald Fatoullah & Associates, a law firm that focuses on estate planning, elder care and Medicaid planning, guardianships, probate, estate litigation and taxation.  Elizabeth can be contacted at 1-877-ESTATES or [email protected].

 

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How I Realized My Value to My Clients

The life altering benefits of insurance had been an abstraction to me until I came face-to-face with a client situation that brought me great satisfaction and taught me a lesson about the value I bring to clients.

Read about the experience that changed me from an insurance agent to an insurance advocate by clicking on the link to the Eddy and Schein In-Home Administrators for Seniors blog.

http://www.eddyandschein.com/blog/how-i-realized-my-value-clients

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Multi Part Education TV Series on Public Access TV – The Challenges of the Sandwich Generation

The first of a four part series can now be seen on Public access TV, on “The Challenges facing the Sandwich Generation”.  It’s a job they can’t say no to, and something they never prepared for.  It is on Channel 76 (Cablevision) and Channel 36 (Fios) and will air for the next four weeks.

PCTV76.org

Host Ernest Csak interviews Evan Gilder, Accountant at Redig Financial Services, about the financial and tax implications surrounding long term care of older family members.

Thanks
Evan

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Tips for Seniors to Avoid Scams

This article  (Copyright 2016 – News & Record, Greensboro, N.C.) appeared in the online CPA Practice Advisor online publication, discusses proactive initiatives taken in Greensboro, North Carolina to teach senior citizens the warning signs of fraud at free training sessions, then encourage them to spread the information to their friends and neighbors. Perhaps we might be interested in offering a similar program in the greater NY area?

http://www.cpapracticeadvisor.com/news/12290455/tips-for-seniors-to-avoid-scams

 

Submitted by Perry Shulman, CPA   12/30/2016 [email protected]

 

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Personal Document Locator

The Personal Document Locator is a detailed list of where one stores their important records, the contact information for primary advisors, family members, trustees and other important information. The list should be updated at least once a year to ensure its accuracy.

The list will be most helpful in the event of disability or death.

Please contact me at [email protected] should you have any suggestions or comments.

 

Perry A. Shulman, CPA

 

 

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