Tax planning

The Senate and the House have both approved versions of a major tax reform and a final approval seems likely. One major change is that state sales and property taxes may no longer be deductible. Therefore, if you have any outstanding property tax bills or are contemplating large purchases, such as a car, deferring payments or purchases to 2018 may result in the loss of the deduction should the proposal pass. Also, there is expected to be a limit on the deductibility of interest on new home mortgages.

Also, there is a proposal to double the standard deduction. According to some estimates 94 percent of taxpayers will benefit more by simply taking the standard deduction instead of itemizing. If you regularly support charities, one idea to discuss with your tax adviser is paying your planned future years’ contributions before the end of the year in order to itemize your deductions this year and utilize your enhanced standard deduction in future years. Alternatively you could continue to make charitable donations and still utilize your standard deduction if your contribution comes directly from your IRA.

The new proposal may provide for some excellent tax planning strategies for retirement plans. The House proposal calls for top tax brackets of 12 percent tax for married couples with under $90,000 of income. Therefore, depending on your specific situation it may make sense to withdraw from your IRAs each year until reaching the $90,000 threshold. This is especially compelling if your beneficiaries are in a high tax bracket.

Finally there is a proposal to increase the estate tax exemption to more than $11 million per person. For high net worth families there is a financial benefit to utilizing that exemption sooner rather than later to leverage growth outside of one’s estate. Moreover, Congress could just as easily lower the exemption in the future, especially if the government is strapped for cash and the makeup of Congress changes.