Year-end financial and tax planning, whether for yourself or for clients, takes on extra importance this year in view of the significant changes in the tax laws under consideration in Congress. Usually, we are in a balancing mode, trying to determine whether to accelerate income or deductions into this year or postpone them into the next year instead. However, if many of the most common tax deductions are going away – particularly the deductions for a variety of state and local taxes – accelerating deductions where you can makes sense since otherwise you will never get to take them.
Similarly, where you have a number of dependents you can claim, accelerating income into this year may be useful since you will not be able to take the personal exemptions for these dependents in future years. This change may have a significant negative impact on your tax situation next year even with the doubling of the standard deduction and suggests we consider planning for this new approach. Changes in the child tax credit, which potentially may be doubled to $2,000 under the Senate proposal, may be helpful in making up some of the gap where minor dependents are involved.
The AMT may have quite a different impact since, if you expect to be subject to the AMT this year, it may behoove you to push income into the next year because the AMT is to be eliminated from the tax code. However, a careful analysis is necessary to ensure that income deferral is both possible and beneficial for you this year and that adverse tax consequences will not follow next year.
Although the proposed changes related to the treatment of pass through business income may not apply to your situation, if in fact they are applicable, this will be a very positive development for your small business and its taxation during the next year(s). Deferring income in the business may make sense and it will be worthwhile to discuss the possibilities with your accountant or other tax professional.
There are more wrinkles in the tax proposals now being weighed by Congress and the final outcome is not yet known. It is critical for you to keep abreast of the action and to be ready to act where necessary to best protect your interests. Again, working with your tax professional should be a continuing process now, before the end of the year.