After much back and forth, it looks likely that a tax bill will pass by the end of the year. The House and Senate have both approved their own versions, and are now in the process of reconciling them. Assuming they do so before the ball drops on 2017, changes to the tax code will go into effect on New Year’s Day, and our 2018 tax bills (meaning those you file in 2019) will look very different—for better or worse.
In the meantime, you can still take advantage of current tax laws to lower your 2017 burden and better position yourself for what the future tax bill may bring. Here are five ways to do it.
A major tax reform feature is the elimination of most itemized deductions. So find out quickly whether you’d benefit from claiming any that may disappear—like the student loan interest deduction, for example. Right now, whether you itemize or not, you can deduct up to $2,500 in interest paid on qualifying loans. For someone in the 25-percent tax bracket who meets the income requirements, that could amount to $625 in savings. The House bill would repeal this deduction; the Senate version leaves it alone.
A bigger potential break can come from deducting your state and local taxes—a boon for residents of high-tax states like New Jersey, New York and California. Both House and Senate bills put this deduction on the chopping block, opting in the end to allow property tax deductions of up to $10,000 a year.
On top of ensuring you itemize and deduct state and local taxes, Certified Financial Planner Vid Ponnapalli suggests fattening your savings by pre-paying a few bills by December 31. Making your January mortgage payment and/or any state and local tax payments this month could up the amount you can deduct for 2017 (provided your mortgage company’s terms permit).
Similarly, you can frontload your generosity by making some of next year’s charitable contributions this year. While we’ll likely be able to continue deducting charitable contributions in the future, you may be less likely to do so. That’s because the standard deduction would nearly double—to $12,000 for individuals and $24,000 for married couples filing jointly—while allowing fewer deductions. So itemizing may not be worth it.
If you’re still within your company’s open enrollment period, sign up for a dependent flexible spending account, if one is offered and you have kids. This allows you to save up to $5,000 in pre-tax pay to be used for daycare, nannies, preschool and summer camp for kids under 13. The latest draft of the House tax bill allows for five more years to take advantage of this account before it disappears; the Senate plan keeps the tax break intact.
Other benefits you might eventually lose: tax-free education and tuition assistance and adoption assistance, as well as deductions for relocation expenses and transportation benefits. Graduate students who receive tuition waivers in exchange for doing research or teaching for the school would see, under the House bill, the value of those waivers added to their taxable income.
If possible, consider putting off a payday till 2018: Side giggers and freelancers could delay sending out final invoices, and full timers might request any year-end bonuses be held for a bit. This strategy can set you up to take full advantage of possibly being in a lower tax bracket next year.
For example, if you’re single and report a taxable income of $44,000, under current law, you fall into the 25-percent tax bracket. Based on the Senate proposal, next year, you’d be in the 22-percent bracket. The House brackets would put you at 12 percent.