Expecting Your Taxable Income to Be Low This Year? You Can Take Advantage of It
If your taxable income is exceptionally low this year, or even if you expect not to be required to file a tax return this year, a number of tax opportunities may be available to you. But time is running short, since these opportunities will require action on your part before year’s end.
However, before we consider actual strategies, let’s look at key elements that govern tax rates and taxable income.
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With so much confusion regarding tax reform, we put together a side by side comparison of the old and new law.
The Tax Cuts and Jobs Act of 2017, more commonly referred to as tax reform, substantially altered the itemized deduction for home mortgage interest and affects just about everyone who has been deducting their home mortgage interest as an itemized deduction on their tax returns.
Years ago, to prevent parents from transferring their investment accounts into their children’s name to avoid taxes, Congress created what is referred to as the kiddie tax. This counteracted the strategy of taking income from the parents’ higher tax bracket and shifting it to their children’s lower tax bracket.
Tax law provides two tax-advantaged savings plans for the Qualified State Tuition Plan (commonly referred to as a 529 Plan). They are similar in that contributions to the plans are not tax deductible (although some states do allow a deduction for contributions to their plans) and the earnings are tax deferred and tax free if used for qualified education expenses.
Well, the Tax Cuts and Jobs Act (H.R. 1) has passed, mainly starting in 2018, and if you are confused by how this new law will impact you, you’re not alone. As has become the norm for Congress, it played brinksmanship and waited to almost the end of the year, in the midst of the holidays, to pass this very extensive tax bill, providing little time for anyone to plan for 2018.
On Friday, December 15, 2017, the House and Senate conferees signed off on a consolidated tax bill resolving the two versions of the “Tax Cuts and Jobs Act of 2017”. Votes on this final bill are expected in the House and Senate this week. We have outlined the differences between current law and the conference report.
So, why do we think early tax planning is appropriate this year? Actually, with the prospect of major tax reform on the horizon, some strategies can be employed before the end of the year that can substantially reduce your 2017 tax bill.