If you won’t be itemizing in 2018 but will for 2017 then consider doubling up on charitable contributions by 12/31/17. You may find it helpful to include a letter to your favorite charity that you are pre-paying your 2018 contribution (so the organization doesn’t expect the same generosity in 2018).
Miscellaneous itemized deductions won’t be allowed in 2018 so if you have some unpaid amounts and will be over the 2% AGI limit for 2017 then pay those tax prep fees and investment fees, etc. now.
Charitable contributions …done.
Balance of 2017 property taxes…done.
Not sure there is anything else I should be doing.
Any idea if there is impact on 529 plans? I have one for GS1 and would be adding to it for his birthday next year and getting ready to set up one for GS2. I don’t know if it makes any difference which year it is done in.
How are trusts taxed under the new law if they file schedule K-1 or 1041?
Heh, good luck with that. (But the advice to double up on your giving this year, if you’re itemizing this year but not next, is solid.)
"I know the new W4 form hasn’t been created or released yet…but…we always put zero exemptions on it…because that was the only way we seemed to come even close to having enough withheld to not have to pay at tax filing time.
Now that exemptions are gone…wondering how we will be able to deal with this…"
Take what you expect to pay in taxes and divide by the number of pay periods. Withhold that amount each pay period.
@Singersmom07 - my understanding is tha there is no difference in terms of setting up 529 plans, but the plans can now be used to pay private school tuition or expenses of up to $10K per year – although that somewhat defeats the purpose of saving for college.
As for prepaying itemizable expenses – you have to be aware of AMT – because the AMT thresholds are going up next year, there is a segment of taxpayers who would not get be allowed the deductions in 2017 due to AMT, and may actually be better off pushing expenses into 2018 because of higher AMT thresholds, assuming that they will have enough to itemize. So for those people who would face AMT in 2017 - the better choice might be to push various expenses into 2018. Here’s a good article from TurboTax explaining how AMT currently works:
And here’s an article from Forbes discussing strategies going forward, taking into account new AMT thresholds:
Even with the SALT restriction, a $10K writeoff in 2018 might be better than -0- in 2017 because of AMT; but going forward there is no way that anyone will have enough deductions to itemize based on state and local taxes alone. (Because $10,000 is less than $12,000, the standard deduction for single taxpayers). So it will have to be SALT in combination with other deductible expenses (generally mortgage interest; medical expenses; charitable contributions)
Thank you to the OP as I really need this thread. I hope there are some tax experts around who also know about disability-based financial matters.
My children have grandparent-owed 529’s and (very small) ABLE accounts (both have qualifying disabilities)… Apparently under the new rules you can move funds from the 529’s to ABLE without penalty. Does anyone happen to know how ABLE accounts are treated on the FAFSA and CSS profile, so as to know how this may affect financial aid? I think it would be beneficial to do this transfer, as ABLE spending rules are much more flexible than 529.
If we don’t do the transfer, I am concerned that some 529 disbursements could be seen as unearned income, taxed at 37%. In particular, would 529 towards room and board be charged at that rate (under the kiddie tax)?
I am also wondering if it is really the case that the kiddie tax will still apply to adults age 19-24 who are full time students under the new rules. It seems odd that the new rules offer no exemptions or child tax credits for dependents over 18, but continues to give them tax penalties for interest or scholarships until age 25.
Contributing to 529 accounts and immediately using it for k-12 might be a good idea if you live in a state with a big benefit. It would have helped me when my kids were little.
Just for clarification, under the new law you will have a tax credit for dependents age 17 and over – it just is less. So,
dependents age 0-16 = $2000 each; all other dependents (high school seniors, college age kids, disabled children, siblings or parents) =$500 each.
That $500 credit is obviously not nearly as helpful as a full exemption would have been, but I don’t think the rules for determining whether someone is a dependent or not have changed.
Here’s what Forbes says:
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I think this is technically wrong as worded, because I think it should apply only to unearned income for children who are dependents – not to self-supporting college students, married college students, or emancipated minors. A lot of college-age students whose parents are on the lower end of the economic spectrum are self-supporting. My own son was self-supporting from age 20 on and I have never claimed him as a dependent from that time.
I think maybe the logic behind the new provisions is from thinking about what my daughter calls “trust fund babies” - the offspring of wealthy parents who have substantial unearned income from trusts – and I suppose it makes some sense to treat that income under the same standards as other estates.
But as someone pointed out upthread, some kids who are beneficiaries of full ride scholarships may also have unearned (scholarship) income over the threshold – but perhaps when scholarship money is counted in many cases their parents shouldn’t be claiming them as dependent in any case.
Here is a little IRS tutorial about dependents: https://apps.irs.gov/app/understandingTaxes/hows/tax_tutorials/mod04/tt_mod04_01.jsp
And stuff about the kiddie tax (old law):
https://www.irs.gov/pub/irs-pdf/i8615.pdf
@psycholing - See https://www.edvisors.com/plan-for-college/saving-for-college/trust-funds/special-needs-trust/
As to the new law, here’s a link to full text: https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.xml
For 529/ABLE information you want to read:
SEC. 11024. INCREASED CONTRIBUTIONS TO ABLE ACCOUNTS.
SEC. 11025. ROLLOVERS TO ABLE PROGRAMS FROM 529 PROGRAMS
I thought the tax credit for children over 17 (which by the way is not a change at all, we always lost the child tax credit when the child turned 18, as one of mine did 2 weeks before the end of the year) was ONE $500 credit for the tax return, not one per child. The question is then if a $500 credit is better than the old $4k exemption deduction (plus the lower overall tax rate). I doubt it, but for me it will probably be a wash if I still have HOH and one child for 2018. This is just what I read, but of course the report could have been wrong about it being one $500 credit and not one per dependent.
It is going to be worth it to get my colleges students to be independent for tax purposes. We’ll go from about $22k in deductions/exemptions (HOH standard deduction ~$9000, 3x$4000 personal exemptions) to 3 x $12k standard deduction on 3 returns. There is no benefit to me claiming them on my return any more.
It is a per-dependent deduction:
SEC. 11022. INCREASE IN AND MODIFICATION OF CHILD TAX CREDIT.
https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.xml
And the $500 credit is LESS money than the $4050 exemption, except for low end earners whose marginal tax rate was 10%.
10% of 4050 = $405
15% of 4050 = $607.50
You can see tax rates and brackets for 2017 here: https://taxfoundation.org/2017-tax-brackets/
Basically a deduction is only worth the marginal rate at best – a deduction reduces taxable income.
But a credit is worth 100% of the amount because it is deducted from tax owed.
And child tax credit is lost when the child turns 17 (not 18):
http://uscode.house.gov/view.xhtml?req=(title:26%20section:24%20edition:prelim)
(The definition of “qualifying child” is not changed by the new law)
I am in the 10% bracket for the last few years, so doesn’t matter.
I think it will all be a wash for us. Not happy about all the changes, but it won’t matter for me. If it were a refundable credit …
I’d like to learn the details of what types of pass through income qualify for the 20% exclusion, in particular the rules surrounding the special provisions added for commercial real estate.
Whatever they come up with for the W-4 will presumably include instructions on what one should do.
“Whatever they come up with for the W-4 will presumably include instructions on what one should do.”
Actually no. You’re usually better off figuring it out yourself based on your own situation.