Financial Insights

Updated Year-End Tax Tips

Since we released our initial year-end tax tips two weeks ago, we’ve been busy processing remaining required minimum distributions from tax-deferred/retirement accounts and harvesting any material unrealized losses in taxable portfolios for those we know may benefit from this.

Now that the tax reform bill has become a bit clearer, here are a few remaining items to consider.

STATE AND LOCAL INCOME TAXES:  Starting in 2018, many itemized deductions, such as state and local income taxes, will no longer be allowed or may be limited to a $10,000 maximum.  Therefore, any remaining 2017 state and local income taxes paid in 2018 may be a “lost” deduction.

If you expect to owe state or local income taxes for 2017 and would normally pay them at some point in 2018 (either with your January estimated payment or when filing in April), then we recommend that most clients prepay remaining state and local income taxes by December 31, 2017.  Your tax preparer should be able to help you with a projection of your tax bill if you can provide them with your updated income figures for 2017.  

PROPERTY (REAL ESTATE) TAXES:  Similarly, the property tax deduction is expected to be capped at $10,000 starting in 2018.  If your annual property taxes exceed $10,000, then it is likely that you will not be able to deduct the amount that exceeds $10,000 next year.  Given this circumstance, prepaying any remaining 2017 property taxes before year-end is recommended along with any amount of your projected 2018 property tax bill that would exceed $10,000.  You may need to speak with your local tax office and/or your mortgage company for particulars and to ensure that your payment is received this year.  If you are prevented from pre-paying 2018 property taxes, then so be it, but it’s worth considering if you have high property taxes.

In the case of either state and local income taxes or property taxes, consulting with your tax advisor or tax preparer is recommended.

MORTGAGE INTEREST:  Given that income tax rates are expected to go down in 2018, another consideration is to make sure that you’ve paid all the mortgage interest you can in 2017.  You can’t prepay mortgage interest due in 2018, but if your next payment is due on Jan 1, then making sure that your next payment is received prior to December 31, 2017, will allow you to deduct the interest portion of your payment for 2017 tax purposes.

CHARITABLE DEDUCTIONS:  Generally speaking, charitable deductions are deemed to be more valuable if they can be made in 2017.  The primary reason is that the standard deduction is expected to double next year and the expected result is that fewer taxpayers will itemize deductions.  You must itemize in order to take the deduction for charitable contributions and taxpayers who use the standard deduction receive no tax benefit for charitable contributions.  If you believe that you may fall into this category of taking the standard deduction next year (which is likely if your itemized deductions won’t exceed the projected 2018 standard deductions of $24,400 married and $12,200 individual) then making charitable contributions before December 31, 2017, may be beneficial.  For example, if you’ve made an annual pledge for 2018 to your local church/synagogue, etc., and normally would expect to pay it next year, then paying it in advance and before year-end will be beneficial.

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.


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