With the passage of landmark tax legislation this week, Internal Revenue Service (IRS) staff and tax preparers are scrambling to catch up with new policies in time for filing 2017 taxes.
The new law coming at the end of year leaves tax collectors and tax preparers little time to digest significant changes; changes that could make it best for some taxpayers to file immediately.
"Some popular tax breaks will remain intact under the new law, but there are also some significant changes that warrant new end-of-year tax planning strategies," said Dave Du Val, an executive at TaxAudit, a company that helps clients avoid tax audits. "Even though we're coming down to the wire, it isn't too late to take action and make some changes before 2017 ends and the new bill comes into effect."
Take action now
Cindy Hockenberry, EA, Director of Tax Research and Government Relations at the National Association of Tax Professionals (NATP), says the new tax law has made it advisable for some taxpayers to take action before 2017 draws to a close.
"If their property taxes are assessed and they have the bill, they should pay it before the end of the year," Hockenberry told ConsumerAffairs.
That's because the state and local tax deduction will be capped at $10,000 starting in 2018. Taxpayers in high tax states often pay a lot more than that, but will only be able to deduct the first $10,000 next year. By paying 2018's property taxes before the end of the year, all of next year's state and local taxes can be deducted on this year's tax return.
"Make charitable contributions before the end of the year," Hockenberry said.
Charitable contributions are still tax deductible under the new law, but she says the new higher standard deduction means millions of taxpayers who normally itemize will find it more profitable not to, starting in 2018. By making 2018's charitable contributions this year, you can write them off one last time.
Tax withholding may change
The bill nearly doubling the standard deduction has another effect that taxpayers need to plan for. That, and the shifting tax brackets, mean millions of people are going to see their tax withholding change.
"The IRS is working on revising the withholding tables now," Hockenberry said. "Taxpayers should see more take home pay as early as February."
For independent contractors and self-employed taxpayers, the change will also affect the amount of quarterly estimated tax payments they make. Consulting with a tax professional now can ensure you're withholding the correct amount.
As for other tax changes, Hockenberry says couples without children may not see the tax savings that taxpayers with children get. She says the new law also eliminates personal exemptions for most taxpayers.
Du Val urges consumers considering the purchase of a vehicle next year to do it before December 31, especially if they live in a high-tax state. The sales tax will be fully deductible in 2017, but it might not be next year.