MAJOR CHANGES TO TAX CODE
Written by Larry Riley, CFA®
Chairman, Trust Investment Committee
Coral Gables Trust Company
The House of Representatives and the Senate have each passed bills proposing a re-writing of the current tax laws. How will they affect you?
Although the final version or even passage remain uncertain at this time, all taxpayers should be gearing up for prospective changes in brackets, deductions and methods of filing in future tax years. We recommend you visit with your tax professional to chart a course for navigating the likely outcome. The new tax laws will become effective in 2018; however, some actions you take today can have a significant effect on 2017 as well as next year's taxes.
Generally, we would say bringing deductions into this year and deferring income into 2018 will be advantageous. Examples would include accelerating charitable contributions as opposed to making an even contribution in each tax year. This would give you more deductions in the higher tax year of 2017. Using appreciated securities for donations to charitable organizations can be a useful exercise. Taxpayers using lower basis securities are able to deduct the current amount of the assets donated but are not subject to payment of capital gains on the appreciation. Direct payment from an IRA is a consideration. Taxpayers age 70 1/2 or older in this calendar year may have charitable contributions made directly to the charity from their IRA. Although they do not receive a deduction for the contribution, they do not need to declare it as income before paying the charity. Taxpayers are able to consider this donation as part of their Required Minimum Distribution (RMD). Taxpayers currently covered by 401(k) plans may want to maximize any pretax contributions before year end. This would defer 2017 income. For those not in a 401(k) making IRA contributions would have a similar result.
Year-end offers opportunities to pay property taxes in the current year. With limitations looming in the future, paying in 2017 versus waiting until 2018 could provide more deductions. Other tactics for homeowners would include making an extra mortgage payment (prepaying) in 2017. Again, an extra interest deduction in 2017, as opposed to potential limitations on the amounts allowed in 2018. Another thought, with the likelihood of losing deductibility of state and local taxes, 2017 may be the last chance to deduct sales taxes. If you are considering the purchase of a big-ticket item, such as an automobile or yacht, it might be better purchased in 2017, thus allowing the deductibility of sales tax this year.
Mutual funds and investors have likely distributed and realized gains this year. Investors should match tax losses carried forward from prior tax years against similar gains this year. A sidebar is that, up to $3,000 of tax losses carried forward can be used against ordinary income if you have no gains. Investors should realize any unrealized losses in portfolios (tax loss harvesting).
This is not an exhaustive list. The bottom line is take actions today that can affect two tax years in your favor. Please visit with your tax professional for advice specific to your situation.
Investment and related products are: Not Insured by the FDIC, the United States Government or any Governmental Agency or by Coral Gables Trust or any of its affiliates.Not obligations of the Trust Company or guaranteed by the Trust Company. Subject to Investment risk and may lose value.
Coral Gables Trust Company manages diversified portfolios for high-net worth individuals, families and complex fiduciary situations that include irrevocable trusts, revocable trusts, guardianships, special needs trusts, charitable trusts, foundations and endowments. For more information please visit CGTC Investment Services.