As December approaches, holiday season is just around the corner. Everyone starts getting busy planning their vacation, but there is one more thing that should be on the to-do list: tax planning. As tax law is changing every year, tax planning is necessary for all people. If tax-saving strategies are well-prepared in advance, taxpayers can prepare for changes in tax law and maximize their return. In addition, due to recent GOP’s Tax Reform Proposal, which deems promising to bring enormous changes to tax law, tax-planning is becoming even more important. Although tax law may look quite complicated and unfamiliar, a few easy ways can help individuals shake off a hunk of tax liability.
Sell the losses in your portfolio. People pay taxes on their gains generated from investment of securities, such as stock. One way to reduce such tax is selling securities with loss. By realizing loss on securities, the loss will offset investment gain, which will eventually reduce the taxes that would have been charged originally. Furthermore, if the loss is more than the gain, it is possible to take up to $3,000 of extra loss to balance other types of income.
Defer your income. Due to the possibility of GOP’s tax reform, taxpayers should consider its potential taxation changes thereof. The most important changes are lower tax rates and greater limitations on reductions. In this sense, deferring income to year 2018 would be more beneficial than realizing it in year 2017. By deferring income to the next year, that income will be taxed at lower rate, which would result in paying less tax.
Go see your doctor now. Reporting medical expenses can reduce taxes by a portion of taxpayer’s income. However, this benefit would not be able to last after upcoming tax reform. In the new tax reform, medical expenses will not be used for offsetting taxpayer’s income possibly resulting in increasing tax. Thus, it makes sense to report medical expenses in 2017 in order for taxpayers to lower their tax. This year may be the last chance for taxpayers to use medical expense deduction.
Defer your donation to charity. Donation or gift to charity is one of the most important part of tax planning. By donating, a portion of donation will reduce the income and thus reduce tax liability. Taxpayers make donations to charity for both philanthropic activities or even for tax purposes. However, it would be wise to defer such donation to year 2018. According to the upcoming tax reform, more portion of each donation would be eligible for reducing income and tax liabilities.
Keep in mind that not all people can make use of these benefits. Different rules are applied to taxpayers based on their status, as well. Thus, it is necessary for taxpayers to know how their status can be affected by the reform, to plan in advance. For further details about tax planning, taxpayers are recommended to get in touch with their CPAs or local tax advisors. Tax preparers are available locally around the turning season to assist taxpayers navigate their way to maximize their tax credits and minimize their tax liability.
TaeHwan Cho/TACS Team, Tax Advisors for Champaign Society