Tax-Planning For Individuals

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Year-end tax planning season is upon us, and with it came uncertainties in the form of possible tax reform legislation and the resulting questions of retroactivity for 2017. This is in addition to the more expected flood of new court decisions and IRS guidance that can require year-end action. We provide a simple breakdown of some of these uncertainties below to help you better navigate our current tax landscape.

Planning For Tax Reform

The Trump/GOP framework proposes significant changes to current tax law, but only adjustments to individual tax rates, the standard deduction, and deductions (generally) are outlined in the following section: 

  • Individual tax rates: The framework proposes a new, three bracket tax rate structure: 12, 25, and 35 percent, with the possibility of a fourth, higher bracket. The current bracket structure is: 10, 15, 25, 28, 33, 35, and 39.6 percent. Regardless of the structure, to ensure the lowest possible tax bill, you should try to balance your taxable income between this year and the next.
  • Standard deduction: To avoid raising taxes for those currently in the 10% tax bracket, the framework almost doubles the standard deduction from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
  • Deductions: The Trump/GOP framework would eliminate all individualized itemized tax deductions except for the charitable gifts deduction and the home-mortgage interest deduction.

No final decisions have been made, but flexibility and preparedness are key. Being knowledgeable of the proposed plan and how the changes could affect your tax situation will position you for success in the future.

Additional Tax Law Changes

When developing your year-end tax planning strategies, be sure to review the changes to tax law recently enacted by the IRS and court system. Here are a few that could have a substantial impact:

  • Hurricane disaster relief: The Disaster Relief Act of 2017 and various IRS efforts have created several tax relief measures and extended compliance deadlines for victims of Hurricanes Harvey, Irma, and Maria.
  • Interest rates: Interest rates have been rising throughout the year – a trend that is expected to continue. Take the opportunity to plan accordingly.
  • Taxpayer mortgage deduction: The IRS decided not to contest a recent Court of Appeals ruling which found that multiple unmarried taxpayers co-owning a qualifying residence can double the $1.1 million mortgage debt limit for interest deduction purposes.

Lifestyle Changes

Legislation certainly isn’t the only factor that should be considered during end-of-year tax planning. Personal circumstance and life changes can also have significant tax implications as well. Be sure to consider any of the following events if they occurred in the past year, or are likely to occur in the upcoming year:

  • Change in filing status
  • Birth of a child
  • Employment changes
  • Moving/relocation
  • Changes in medical expenses
  • College or tuition expenses
  • Retirement
  • Personal bankruptcy
  • Large inheritance
  • Business successes or failures

Don’t let uncertainty paralyze your planning efforts. Contact our tax professionals to help guide you and put you in a position to act quickly when tax legislation is signed into law.