Over the most recent weeks, the House and the Senate have each proposed tax reform bills that could result in sweeping changes to our current tax system. While nothing has been signed into law yet, some of our clients may want to consider prepaying state and local taxes or accelerating planning charitable giving before December 31, 2017.
State and local income taxes, including income tax and property tax deductions, may not be deductible in the future. The proposed tax bills would limit the state income tax and property tax deduction to $10,000. For taxpayers that pay quarterly tax estimates, consider paying the 4th quarter state estimate that is due by January 15, 2018 before December 31st. This will allow you to claim the deduction on your 2017 tax return. For homeowners, consider paying your 2018 property taxes in 2017. These considerations only apply to taxpayers that are not currently in alternative minimum tax.
The charitable donation deduction is not being eliminated on the proposed tax reform bills, but that does not mean the proposed tax reforms bills do not affect the deduction. The standard deduction would nearly double for individuals to $12,000 and married couples to $24,000. This coupling with the limitation and even elimination of state and local tax deductions as described above would greatly decrease the number of taxpayers that would itemize their deductions. This may reduce the chance that charitable donations will directly reduce your tax liability. For taxpayers that have itemized their deductions in the past, consider accelerating any planned charitable giving for next year into 2017 to be able to claim the deduction on your 2017 tax return.
Another option to accelerate your charitable giving is to work with a charitable foundation. Under this structure, you make a large donation to a charitable foundation (such as the Foundation for Jewish Philanthropies or the Community Foundation of Greater Buffalo) before December 31, 2017, which counts as a charitable deduction for 2017. The foundation will then distribute the funds to charitable organizations in future years as per your instructions. An example would be if you made a donation of $10,000 in 2017, you could then distribute $2,500 per year (or any amount you wish) to any charitable organization you choose over the next four years. If you would like to consider doing this, please check with the foundation first, as there may be minimum donation amounts required, fees and other restrictions involved.
If you are unsure if any of the above suggestions make sense for you or if you have any other questions regarding the proposed tax changes, please contact our firm at info@bspcpa.com or 716-854-5034 and we will be happy to take a look at your situation.