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Delaney and Delaney Legal Blog

Tuesday, December 19, 2017

Defer to the Second Half and Other Year-End Tax Tips

submitted by Brian J. Delaney, Esq. 

With a major tax bill pending, now is the right time to see what you can do to reduce your income tax bill before year's end.  Here are some ideas:

Defer to the Second Half

In football, when a team wins the opening coin toss, they can elect to receive the ball to start the game or wait until the start of the second half.  Patriots' fans know that if he wins the coin toss, Coach Bill Belichick will always defer possession to the second half.  Why?  He sees a bigger benefit to having the extra possession later on in the game as opposed to the opening drive.

If you are self-employed and are owed money, is it better to receive income now or a little later?  Most people prefer to get paid now, but if the tax rates are lower in 2018, it may be advantageous to wait a couple of weeks.  Assume that under the current tax code, your top marginal tax rate is 28%.  Under the proposed tax plan, it could be 22%.   A $10,000 payment received on 12/31 would generate $2,800 in federal income tax.  If it was deferred to January, the tax incurred might be $2,200, a savings of $600.


Pay Your January Mortgage Now!

For most homeowners, their mortgage bill is due on the first of the month and can be paid as much as 15 days late without incurring a late charge.  Due to the itemized deductions limits in the tax plan, some taxpayers will lose homeowner tax benefits.  Currently, a homeowner can deduct mortgage interest and real estate taxes paid on Schedule A.  If you make the January payment in 2017, the accrued mortgage interest can be deducted in 2017.  Additionally, if your lender does not escrow your real estate taxes and your city/town has already issued the next tax bill due 2/1, then you might be able to pay and deduct that in 2017 as well.  (Tip: If cash is tight after the holidays, check and see if your city/town takes credit card payments.  The deduction is based on the date you pay, not the date you pay the credit card bill!)  Assuming a mortgage payment of $2,200 (including $1,800 in mortgage interest), a taxpayer in the 25% tax bracket will save $450 by paying on December 31 instead of January 1.


Give to Charity and Empty Your Closet 

Some taxpayers will not be able to deduct charitable contributions under the proposed plan because it will be more beneficial to claim the new standard deduction.  If that's the case, make your 2018 charitable contributions now!

Caveat: The proposed tax plan has not yet passed and its final provisions are subject to change.  As always, consult your tax advisor on all tax related matters because everyone's tax scenario is different.

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