How the GOP tax bill could alter year-end tax plans

As 2017 draws to an end and a new tax law looks like a real possibility, now is the time to think about some financial planning.

The GOP tax plan's centerpieces are to simplify the number of tax brackets from seven to four, reduce taxes for middle-income Americans by lowering tax rates and nearly double the standard deduction that about 75 percent of all tax filers claim. However, some of the benefits of these tax-reducing provisions are offset by the elimination of the personal exemption ($4,050 per individual) and the end or reduction of many deductions that are allowed under current tax rules.

The tax rate reductions (where more income is taxed at lower rates) and the elimination of many itemized deductions create two planning opportunities for December 2017 that will come into play if the tax plan is passed into law. Those are to delay recognition of income until next year and accelerate payment of expenses that qualify as itemized deductions.

Here are a few examples that could help save on taxes if the new tax plan is effective for 2018:

Those who are self-employed should wait until January to send invoices for payments they typically receive in December.

Homeowners should pay their January 2018 mortgage payment now because it includes interest for December. They should also prepay real estate taxes that are typically due in the first quarter.

If you usually make estimated tax payments, pay your fourth-quarter estimated tax for state income tax before year-end.

If you typically make donations to charity, consider making some or all of your 2018 donations in 2017.

Tax filers should consider these four deductions that could be repealed in 2018 and determine if they can take advantage of them now. For example, if you're considering moving in the next several weeks for a job change, try to complete your move and pay for all moving-related costs before year-end.

The 25 percent of individual taxpayers who itemize deductions will benefit the least from the GOP plans, and some may even face a higher tax liability in 2018 versus 2017. This is due mostly to the proposed repeal of the deductions for state and local income taxes and real estate taxes. Households that claim more than two personal exemptions could also see significantly less tax savings.

While the doubling of the standard deduction should offset most of the loss of personal exemptions for taxpayers who claim the standard deduction, that's not the case for those who've typically claimed itemized deductions. For those taxpayers, the strategy of prepaying state income taxes, real estate taxes and charitable donations appears to make the most financial sense. 

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.