What You Should Know About the New Tax Bill Before Year’s End

Do you need to do anything before year’s end in anticipation of the newly reconciled tax bill, likely taking effect January 1?

You can find a million articles online that outline the changes to tax law proposed in the bill. I doubt I’d do a better job than CNN at writing it up, so I’m not gonna try.

What I want to focus on here is: Do you need to do anything by year’s end to improve your tax situation? Most of the provisions you can’t do anything about. They just are.

But there are a few tactics you could employ to marginally improve your tax situation, at least for this year. If you can do it in the next 13 days, that is.

To Better Understand the New Tax Bill

If you want more information about the tax bill, check out these articles:

• The New York Times calls out the Winners and Losers under the new bill
• CNN gives the most important highlights
• Bloomberg tells you how to “exploit” the tax bill right now

CNN also provides a simple calculator for estimating how the new tax bill will affect your taxes, based on your state, marital status, and number of children. This only applies to you if you’re salaried (as opposed to being self-employed in some capacity).

Do You Pay High Property Taxes?

One of the most talked about strategies for minimizing the tax hit of the new bill (well, talked about in my world, at least) was to prepay your 2018 state income taxes and property taxes in 2017.

Why would you do this? Because the ability to deduct state-income and property taxes starting in 2018 will be curtailed, and so you’ll owe higher federal taxes. It turns out that legislators saw this coming and prohibited prepaying state income taxes.

However, you can still prepay 2018 property taxes. This only makes sense if you itemize your deductions. Alas, I cannot tell you how exactly to prepay the taxes, as your local government is the one who makes those rules. Check with your County government (or website) to figure it out.  

By prepaying in 2017, the goal is to write off more of your property taxes, and at a higher tax rate (which means a bigger reduction in your taxes).

Are You in the Middle of Buying a Home?

New homebuyers will now be able to deduct interest only on the first $750,000 of mortgage debt on a newly-purchased home. Currently, the cap is $1M. Most people in this country are probably thinking, “Whatevs. Like I can afford a house that expensive.” Those of you living in the Bay Area or Seattle or New York, however, know this is Business As Usual.

If you already own a home and have a big mortgage, don’t worry. This change affects only people who buy homes starting in 2018. But if you are in the middle of buying a home, and your mortgage is over $750,000, see if you can finish it all by year’s end.

[ETA 12/18/2017: As this thorough analysis explains, “the limitation only applies to new mortgages taken out after December 15^th of 2017 …In addition, any houses that were under a binding written contract by December 15^th to close on a principal residence purchased by January 1^st of 2018 (and actually close by April 1^st) will also be grandfathered.” So, if you aren’t already under a binding written contract, there’s no use hurrying to finish buying the home.]

What’s Happening to Charitable Deductions?

Thankfully, the deduction for charitable donations survived. But it’ll save you less tax money starting in 2018, for two reasons:

1. Your tax rate is likely to decrease (and the higher your “marginal” tax rate, the more valuable any itemized deduction is)
2. You’re less likely to itemize starting in 2018, because many itemized deductions are being eliminated or limited. And if you don’t itemize, you can’t write off charitable donations.

If philanthropy isn’t already part of your life, don’t let this alone push you into making a charitable contribution. But, if charitable giving is something you already want to do, and you are simply dithering about when to donate, or exactly how much to donate, I suggest making it happen before year’s end.

One great charitable opportunity often available to people in tech is donating company stock that has grown a lot in value (which would make selling it very costly in taxes).

What Other Itemized Deductions Can You Increase in 2017?

As mentioned above, the value of your itemized deductions will, all else equal, be lower in 2018. So, take a look at the 1040’s Schedule A and see if there are any expenses that you can deduct in 2017 instead of waiting for 2018.

For example, “Miscellaneous” itemized deductions are being eliminated entirely in 2018. So, do you have any investment management fees, tax prep fees, or unreimbursed employee expenses that could be deducted now?

Can You Control When You Receive Income?

You can’t control when you receive your salary, or when your RSUs vest.

But you can control when you:

• Exercise options (which can count as income)
• Sell stock that has grown in value
• When you bill or receive income, if you’re doing some freelance or consulting work

If you were planning on doing those things in the next  two weeks, maybe wait until 2018.

On the other hand, if you were thinking of selling investments that have lost value (which can save you taxes, and it’ll save you more the higher your tax rate), that’ll likely be more valuable to do now, before the end of 2017.

Max Out Your Pre-Tax Retirement Contributions

You should probably always max out your contributions to your 401(k) (or IRA). But especially because tax rates are going down next year, your pre-tax contributions are probably worth more this year than they will be next year.

So, if you haven’t maxed out your 401(k) contribution next year, go to your 401(k) and crank up your contribution for the final paycheck contribution of the year.

On the other hand, if you contribute after-tax to a Roth 401(k) or IRA, then delaying that kind of contribution to 2018 (and the lower tax brackets) might help save you a little bit in taxes.

The Real Message Here

As you can see, there’s not all that much we can do to “game” the system before the new tax law takes effect on January 1. But it’s also the case that financial strength doesn’t come from gaming the system (any system!).

It comes from making the right decisions, over and over again; from gradually accruing wealth and building the right habits. Regardless of what you think of this tax bill, it will likely be law, and how will you adjust your habits to make the most of it?

2018 will likely be a very good year to consult an accountant for some tax projections. Don’t wait until you start doing your taxes for 2018, in early 2019, to figure out how this new tax law will affect you, and what you should have done in 2018.

Many of the strategies that a lot of us have used for years, that are almost instinct by now, will no longer serve us as well. So having an accountant be able to point you towards shiny new strategies—while there’s still plenty of time to act on them—could be very worthwhile.

Do you want help figuring out how to buy a home? Reach out to me at  or schedule a free consultation.

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