Fall is upon us and it’s a good idea to start thinking about your 2017 tax return now.
While most people wait until March or April to file, there can be advantages to filing early. Some deductions may be lost if you don’t act by Dec. 31.
It’s wise to engage your CPA in these planning strategies now and early in 2018 when they typically have more time to assist.
Congress is currently considering tax legislation. Some parts of the bill could be “retroactive,” meaning they will go in effect for the 2017 tax year. We should monitor this situation and its potential effect on this year’s tax return.
Year-end tax considerations
It’s a good idea to estimate what your capital gains distributions will be for the year. Most mutual fund companies will tell shareholders ahead of time what they plan to distribute to shareholders and when.
It’s possible for an investor to avoid these gains in some circumstances. It’s also a good idea to determine if any capital gains losses are available and if so, if it would be wise to sell before the end of the year to “harvest” these losses and reduce capital gains taxes for 2017.
To lower taxable income, be sure to maximize contributions to 401K and other retirement accounts.
While 2017 IRA and Roth IRA contributions can be made until April of 2018, employer sponsored retirement plans typically have a contribution deadline of the end of the calendar year.
Determine if there is money left in your Flexible Spending Account.
Will it be lost at the end of the year? Deposits to Health Savings Accounts and 529 Savings Plans can be valuable ways to save for health care and education expenses while reducing current income, but their contribution deadlines are Dec. 31.
Be sure to make any charitable contributions by the end of the calendar year and don’t forget to save receipts for “non-cash” contributions to organization like the Goodwill and Salvation Army.
Estimate income for this year and next
Understand your probable income before the end of the year. Will your income be significantly higher or lower this year or next?
If your income is higher than normal this year, consider paying certain 2018 deductible expenses — like property taxes, business expenses, or mortgage payments — early so you can deduct them in 2017. But remember you won’t be able to take these deductions again in 2018.
It’s possible you may have less income this year than you would expect in 2018. If that’s the case, you can delay certain payments until January so they are deductible in 2018 when the benefit of the deduction is greater.
You may also consider selling investment positions now and generating capital gains in 2017 or converting a traditional IRA to a Roth IRA if you are in a lower tax bracket this year as opposed to next year.
Consider filing early
After you have a good tax planning strategy in place, get organized and file early in 2018. While many 1099s are not required to be sent to you until mid-February, you can gather receipts and other tax filing documents while you are waiting.
The Equifax data breach may have exposed your Social Security number to hackers who sell your information. Filing early is a good way to thwart thieves who file fake tax returns using your Social Security number.
Above all, be sure to file your tax return and pay your taxes. Because tax prison is still prison!
Chris Walden, CFP, is an adviser with Heartland Capital Advisors, LC, a registered investment adviser in Independence.