2017 Tax Planning

[mlm]

Figured I'd start a new thread, since this is NOT commenting on the upcoming (shitty) tax law, but what to do now that it is likely a done deal.

Right now I'm thinking of the following year end changes:

1) Prepay my February property tax. Next year's total will exceed the likely 10K cap, and any tax I defer will be at the proposed lower marginal rate

2) Prepay my January mortgage payment. Seems interest deduction isn't going to change, but better to deduct it when I'm at the higher marginal rate

3) My kids both have custodial accounts that have been doing pretty good. Thinking I should cash out enough to take advantage of their $1K exemption. Looks like I probably should have done this (and filed returns for documentation) in the past as well.

I checked the AMT factoring 1 & 2 and should be good. Number 3 I'm still researching, but it seems legit. Any other considerations or ideas? Going to check with our tax guy too, but need to act soon to ensure property tax gets processed by end of year.

 

[SteelerFanatic]

Isn’t the new tax law effective in 2019 for 2018 tax year?

 

[mlm]

Isn’t the new tax law effective in 2019 for 2018 tax year?

That's my understanding. And since the rates are lower, you should be better off taking deduction against the higher rate

 

[mercurial]

I would suggest looking into whether you can pre-pay 2018 state taxes in 2017. If SALT deduction is eliminated, this could save you decent money since you would be deducting 2018 state taxes in 2017 and then boost your state W4 withholdings in 2018.

I didn't look into it too much since AMT will make it a wash for me.

 

[UDRider]

I would suggest looking into whether you can pre-pay 2018 state taxes in 2017. If SALT deduction is eliminated, this could save you decent money since you would be deducting 2018 state taxes in 2017 and then boost your state W4 withholdings in 2018.

I didn't look into it too much since AMT will make it a wash for me.

Aren't they trying to get rid off AMT also?

 

[CABilly]

I always get a return.

Looks like this year, though, I'll be getting a little ATM insult to injury by the AMT.

Shit.

 

[mlm]

Aren't they trying to get rid off AMT also?

Again, the tax bill wouldn't take effect until tax year 2018.

Yes, they are proposing repeal of the AMT, which is a mistake IMO. The problem with AMT it is that threshold values were never adequately adjusted. It was supposed to only apply to the top income levels and prevent tax shelters, but frequently kicks in for upper middle class households only deducting SALT and mortgage interest. Best I can say is that a repeal would stop the political games with the limits, but IMO it's yet another corrupt part of the tax plan designed as a handout to the top tax brackets

 

[mercurial]

So whether or not they repeal AMT, AMT will be in effect in 2017. What that means for me is that even if I am able to front-load 2018 state taxes into 2017 by prepaying them and deducting them in 2017, I am still hitting AMT in 2017 which will cancel my additional deduction. So, it's pointless for me.

 

[mlm]

So whether or not they repeal AMT, AMT will be in effect in 2017. What that means for me is that even if I am able to front-load 2018 state taxes into 2017 by prepaying them and deducting them in 2017, I am still hitting AMT in 2017 which will cancel my additional deduction. So, it's pointless for me.

In better shape with AMT because my wife stays at home. I'll look into the CA tax angle. That has a better return than shifting a mortgage payment. Already sent in the property tax since that would have hit up against the 10K cap anyways.

 

[Ducky_Fresh]

I need to understand how to shelter income better, as there is a large sale i'm working on this year at work. I have a good tax guy, but could use some better ideas other's are employing.

529's, ROTH IRA, Regular 401k, HSA..

What about investments: stocks, rental property, improvements to my house, etc?

What about starting a business?

 

[rodr]

I need to understand how to shelter income better, as there is a large sale i'm working on this year at work. I have a good tax guy, but could use some better ideas other's are employing.

529's, ROTH IRA, Regular 401k, HSA..

What about investments: stocks, rental property, improvements to my house, etc?

What about starting a business?

Best thing you can invest in is yourself. Improving your education, marketability, knowledge etc.

Starting a business can be hugely successful if you see a clear niche and a path to profit. Just know that most new businesses fail and have a good reason why yours won't be included in that category.

I like my traditional (not Roth) IRA because I can grow my investments with before-tax dollars. Figuring out what to invest in is the hard part.

You definitely want to keep your home maintained, but beware of improving it too much for the market. It's good to be towards the mid-to-low range of prices in your area when you want to sell.

I didn't enjoy the time that I was a landlord, but it might suit you. The main thing is to enjoy whatever you do -- life is too short not to.

 

[mlm]

Got kids in college? Better find your boot straps!

https://www.washingtonpost.com/news...-with-kids-in-college/?utm_term=.70073ecb6d96

They eliminated the 4K/person exemption in favor of a 2K child tax credit. It's close to a wash for a family of 4 (4K credit vs taxes on 16K), but the credit phases out at 17 while the exemption lasted through 24 for dependents. Which means you basically get socked with an extra 2K per kid in college

edit: Actually looks like this will hit most people in their kid's senior year of high school.

 

[UDRider]

But can I now start saving for my unborn child college fund?

 

[gnahc79]

But can I now start saving for my unborn child college fund?

Roth IRA is good for that. IMO max out the allowed 401k contribution before doing that, which is $18K for 2017. You first, kid second (born or unborn).

 

[mlm]

Roth IRA is good for that. IMO max out the allowed 401k contribution before doing that, which is $18K for 2017. You first, kid second (born or unborn).

The limit applies to both Roth/Traditional.

And not sure how you expect to use an IRA for funding college. That's what 529 plans are for (tax deferred college).

One note: The Senate had to axe the 529 changes that would have let people use them to pay for K-12 education.

edit: Ahh...didn't realize you could use Roth IRA for college planning https://www.cnbc.com/2014/02/03/rot...y-to-save-pay-for-higher-education-costs.html :thumbup

 

[UDRider]

I was being sarcastic. I was referring to this

 

[gnahc79]

The limit applies to both Roth/Traditional.

And not sure how you expect to use an IRA for funding college. That's what 529 plans are for (tax deferred college).

One note: The Senate had to axe the 529 changes that would have let people use them to pay for K-12 education.

edit: Ahh...didn't realize you could use Roth IRA for college planning https://www.cnbc.com/2014/02/03/rot...y-to-save-pay-for-higher-education-costs.html :thumbup

Yeah neither did I for many years . My parents are role models for saving, investing and spending wisely. I did not follow their footsteps that well early on but am on track now. For whatever reason, my parents advised going the Roth IRA route vs 529. I picked a low cost index fund.
For me 529 can be risky because you're locking in $$$ that has to be used for college (well you can use it for non-education stuff, you'll just get taxed and penalized like crazy). What if my kid does not to go to college? No pressure kid, I have a boatload of money saved for your college fund but none of it can help w/ a downpayment of your 1st home after landing an awesome job w/o a degree.

 

[gnahc79]

I was being sarcastic. I was referring to this

ah dangit I knew it :laughing! need to add /s to yer post!

 

[mlm]

Yeah neither did I for many years . My parents are role models for saving, investing and spending wisely. I did not follow their footsteps that well early on but am on track now. For whatever reason, my parents advised going the Roth IRA route vs 529. I picked a low cost index fund.
For me 529 can be risky because you're locking in $$$ that has to be used for college (well you can use it for non-education stuff, you'll just get taxed and penalized like crazy). What if my kid does not to go to college? No pressure kid, I have a boatload of money saved for your college fund but none of it can help w/ a downpayment of your 1st home after landing an awesome job w/o a degree.

Yeah, that's why I'm not in a 529. Have my retirement contributions maxed out, but only a little bit in Roth. The kid's college plan right now is called "Mom goes back to work" :laughing

 

[mlm]

The child tax credit is worse than I thought. Right now kids are an allowed exemption till they are 19 or as old as 24 if they are in college. The new plan cuts them off if they turn 17 during the tax year. That means many HIGH SCHOOL JUNIORS are no longer allowed dependents!

https://itep.org/final-tax-bill-hits-parents-of-college-students-harder-than-other-taxpayers/

If you're not affected yet, you might want to hold on to that extra $20/week. You'll need it later