Accountants are working overtime as savvy taxpayers rush to their offices before Dec. 31, looking for last-minute deductions that may disappear in 2018, when the tax bill recently passed by Congress and President Donald Trump goes into effect.
The tax law almost doubles the standard deduction and offers up to $10,000 in savings on income taxes and state and local property taxes. That may tempt many middle- and low-income earners to stop itemizing in 2018, when the new tax law fully impacts taxes.
Here are some tips from tax experts to maximize savings you still can grab this year. The key take-home message: Run the numbers with your accountant before Dec. 31.
“I had one client email me saying, ‘If you’re reading this email today you have Congress to thank,’” Frank O’Shea, a CPA with BerryDunn in Portland, said.
1. Prepay your property taxes.
Homeowners should consider prepaying property taxes by Dec. 31 of this year, even if their second payment for 2017 isn’t due until April 15, 2018. “But they can only do that if their property has been assessed for the full year,” Daniel Doiron, a certified public accountant and principal at Albin, Randall and Bennett in Portland, said.
There has been confusion surrounding that element of the law. In a Dec. 27 advisory the Internal Revenue Service said only taxes on property assessed and paid in 2017 are deductible this year. Maine Revenue Services spokesman David Heidrich said Maine will conform to the IRS ruling.
2. Reconsider taking out or keeping a home equity loan.
Home equity loans at a fixed rate or home equity lines of credit that vary with market rates have been popular ways to finance home improvements and consolidate debt. Through 2017, up to $100,000 in home equity loan paid interest still can be deducted.
But the interest will not be deductible as of Jan. 1, 2018, Doiron said. He advised looking at other options. For example, a homeowner could refinance at more than they owe on their home and take the difference in cash.
3. Consider prepaying any state income tax or estimated taxes.
If you expect to owe tax on the April 15, 2018, filing deadline, it still is fully deductible if paid by Dec. 31. Depending on your income bracket, deductions may be capped within the $10,000 range next year. For self-employed people, prepay your fourth quarter estimated earnings tax in December rather than January, O’Shea recommended.
Businesses needing equipment or other items that depreciate should consider buying them before the end of the year, O’Shea said.
4. Defer income until 2018.
About 80 percent of American households are expected to get tax cuts in 2018, ranging from $60 for those making less than $25,000 per year to $51,000 for top earners making more than $733,000, according to the nonpartisan Tax Policy Center in Washington, D.C. Middle-income earners in the $49,000 to $86,000 range will get $900 extra.
With higher earners seeing more generous tax cuts next year, deferring bonuses and other income until 2018 potentially could benefit businesses and employees.
5. Beef up 401(k), Health Savings Account and charitable contributions.
Accountants said this is good advice any year. While Roth and traditional IRA contributions can be made until April 15, 2018, 401(k) and HSA contributions must be maxed out by the end of 2017.
The total for a 401(k) is $18,000, though those 50 or older can add a $6,000 catch-up contribution. For HSAs, the limit this year is $3,400 for a single person and $6,750 for a family, with a $1,000 catch-up contribution for those 55 or older. Those with flexible spending accounts should use any balance in the account or they will lose it.
O’Shea said those who don’t plan to itemize next year should make maximum charitable contributions or pledges this year.
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Correction: An earlier version of this report should have stated that the changes to the tax code were made as part of the Tax Cuts and Jobs Act. This story also has been updated to reflect new clarification by the IRS on the property tax deduction.