As we are all well aware, this past election has the potential to lead to many changes in our government, especially the areas of taxation.
The president elect has made it clear that his intention is to drastically overhaul the tax system. Many experts believe this will be the largest change to the tax code since the Tax Reform of 1986 by the Reagan Administration. We see an increasing number of experts voicing their guesses that the proposed income tax rates will, in some manner, be lowered with the inevitable tax change. Some believe ObamaCare will be repealed, but most feel some form of government health care will remain.
We have already seen some changes in the business world with the Department of Labor’s new Overtime Laws which were slated to take effect December 1, being put on an indefinite hold by a court injunction. . It leads a person to wonder what else will change after inauguration. The problem is that nobody knows what’s to come. This makes tax planning even tougher than when Congress waited until after year end to pass tax laws.
Fortunately, there are a few steps you can take, from a tax perspective, to potentially minimize the future risk:
- Defer receipt of income – Most would agree now that income tax rates in future years will not be higher. Deferring receipt of income from 2016 into future years will most likely result in lower taxes. This includes capital gains that may not be subject to the 3.8% Net Investment Income Tax in the future.
- Get itemized deductions in before the end of the year – Part of the proposed tax changes also includes limiting itemized deductions. So it may make sense to get large charitable deductions done in 2016 instead of waiting. Remember that gifting appreciated assets (such as stocks) can provide a tax deduction and remove taxable income from your return. But be careful if you have charitable deduction carryovers, as they expire after five years and current charity deductions are taken first before using up the carryovers. Be sure to get those medical bills paid (charged on a credit card works) and possibly prepaying state income and real estate taxes – but be careful as AMT may kick in and eliminate that deduction.
- Pay off tuition bills – Along with the potential loss of itemized deduction is the potential reduction of education expenses so make sure to take full advantage of the existing credit by getting those tuition bills paid. Even if the credits remain, lower brackets will mean effectively less tax savings.
- Consider deferring some expenses until 2017 – Also included in the proposals is to allow for an off-the-top deduction for child care, which means deferring some of those expenses until 2017 may actually help lower your future taxes, specifically for higher earners.
Will taxes be made “easier” in the future? Is planning easier right now? Reilly, Penner & Benton is here to help you navigate the tax aspects of all your decisions; big or small. Call us today to make an appointment with one of our tax experts.