Taxes, like death, might be certain, but strategies to lower your taxes might be quite fluid this year in light of changes in Washington.
◗ Let’s start with what we know
The tax extenders law passed in 2015 made permanent many rules that used to hinge upon last minute passage by Congress. These include the rule allowing taxpayers age 70½ or older to distribute up to $100,000 from an IRA direct to charity. Also made permanent was the American Opportunity Tax Credit, which provides a credit of up to $2,500 for qualified higher-education expenses for yourself, your spouse, or a dependent in the first four years of college. Be aware that the AOTC phases out at $180,000 for married joint filers and at $90,000 for unmarried taxpayers. It is not available if you are married and file a separate tax return.
Business owners can also count on permanent tax breaks such as the generous Section 179 deduction of up to $510,000 for qualified new or used business equipment. However, the deduction is limited for every dollar spent on equipment in excess of $2,030,000. In addition, new equipment purchased in 2017 may qualify for 50% bonus depreciation.
In 2018, this bonus rate drops to 40%, so plan your acquisitions accordingly. Light duty vehicles placed in service in 2017 will be eligible for an $8,000 first-year bonus depreciation.
Some tax strategies are tried and true and unlikely to change in 2017.
Contributing the maximum to your retirement plan is solid advice year in and year out. The limits for a 401(k) remain unchanged in 2017 at $18,000, plus another $6,000 for ages 50 and older. Holding appreciated securities more than one year before selling will likely qualify you for lower
long-term capital gains rates. And gifting securities to charity remains an effective tax strategy to avoid capital gains taxes, while creating a charitable deduction to boot.
Tax breaks related to home ownership should be on solid footing again this year as well. Mortgage interest, real estate taxes, and qualified points are perennial taxpayer perks. However, the deduction for private mortgage insurance (PMI), is not currently available in 2017.
◗ On the other hand
Changes in Washington may turn some trusted strategies completely on their head in the coming months. If individual or corporate income tax rates are lowered, you might want to increase 2017 taxable income rather than defer it if you have flexibility in this area. This might also be a good year to convert your regular IRA to a Roth and pay the taxes due now rather than on future withdrawals.
The slippery nature of this year’s tax scene requires nimble tax planning. Contact our office for up-to-the-minute tax planning tips.