It’s not too late to cut your 2017 tax bill. Prior to December 31st:

  • Increase your 401(k) and 403(b) contributions if you haven’t been contributing at the maximum rate all year.? This year you can put up to $18,000 into your 401(k) or 403(b) plan at work.? Anyone 50 or older by December 31st can put away an additional $6,000.? Contributing to a 401(k) or 403(b) plan at work is one of the best tax shelters available to you during your working years.? (You might also start thinking about setting your 2018 retirement savings goals too.)
  • If you’re self-employed, consider setting up a Solo 401(k) by 12/31.? A Solo 401(k) plan lets a self-employed person hit the $54k retirement plan max with less income than a SEP IRA, and also allows a person aged 50 or older to put away $60k into a retirement plan for 2017 versus $54k into a SEP IRA.
  • Take a look at your withholdings and instruct your employer to withhold additional taxes to avoid getting hit with an underpayment penalty if you haven’t had enough taxes withheld during the year.? (Take a look at the IRS’ Withholding Calculator to set your withholdings for 2018.)
  • Consider selling your investments held in non-retirement accounts that have decreased in value since your capital losses can offset other capital gains realized during the year (including capital gain distributions from your mutual funds).? Excess losses can then be used to offset up to $3,000 of wages and other income.? Make sure to wait at least 31 days before buying back a security sold at a loss, or the IRS will disallow the loss under the “wash sale” rules.
  • Consider selling your investments held more than one year that have increased in value if you are in the two lowest tax brackets since the long-term capital gains rate for you will be 0%.? You can then buy back those securities, and the “cost-basis” will be the higher amount.? Wash sale rules don’t apply to securities sold at a gain.? This strategy will save you taxes down the road when you sell these securities.? Just make sure that the capital gains realized don’t push you out of the 15% tax bracket, or you’ll be taxed on those gains that fall outside that bracket at 15%.
  • Send in your January 2018 mortgage payment early enough so it will be processed prior to 12/31/17.? By sending in your payment a few weeks early, you can deduct the interest portion of that payment a full year earlier. This is especially important this year since one of the tax changes might be to limit the mortgage interest deduction.
  • Clean out your closets and donate your clothing and household items to a charitable organization, since “non-cash” contributions are deductible if you itemize.? Don’t forget to get a receipt.? And you should make a list of each item donated, along with its condition, and snap a few photos as well.? Remember, only donations of clothing and household items in “good condition or better” qualify for a deduction.
  • For gifts of money, making your donation by credit card before December 31st allows you to deduct the donation on this year’s return, even if you don’t pay your credit card bill until 2018.? And you always have the option of donating appreciated investments to charities. You get to claim your donation based on the value of the assets donated, without paying any capital gains taxes on the appreciation.? (Use this IRS tool to confirm a charity as legitimate.) Don’t donate investments that have decreased in value.? Instead, sell them first, take the loss on your taxes, and donate the money received from the sale.
  • Pre-pay your projected state tax shortfall if you’ll be itemizing your deductions and not subject to the alternative minimum tax.? Due to the higher tax rates enacted for 2014, there is a better chance that you won’t get hit by the AMT this year than prior to 2013.
  • Pre-pay and pay off your medical bills if your total medical expenses exceed 10% of your income and you itemize.? And with the medical expense deduction possibly being eliminated by the Trump tax law change, consider paying whatever medical expenses you can prior to 12/31/17 if your total expenses will exceed 10% of your income and you will itemize your deductions.

And, as always, evaluate whether you’ll save any taxes by postponing 2017 income or deductions into 2018 or by accelerating 2018 income or deductions into 2017.??

With the Trump tax changes seeming very possible, there is a very good chance that tax rates will decrease in 2018, while certain deductions such as medical expenses, state income taxes, and real estate taxes might be eliminated or reduced,? And the mortgage interest deduction might be capped based on a mortgage debt of just $500k, half of today’s cap of $1 million.? Please plan ahead accordingly