Individual Income Taxes Are Likely Changing in 2017: Finding Opportunities Before Year-End

• Brackets: There will be three instead of seven: 12%, 25% and 33%.
• Reduced taxes: Most individuals will pay less in taxes. The higher your income, the greater the cut. The Net investment Income Tax (NIIT) is eliminated. The Alternative Minimum tax (AMT) is eliminated.
• Deductions: Parents with childcare expenses will be able to deduct childcare from their income, with income limitations. The Standard deductions will increase to $15,000 for single taxpayers and $30,000 for joint taxpayers. Itemized deductions will generally be limited to mortgage interest and charitable contributions, and would be capped at $100,000 for single and $200,000 for joint filers.
• Exemptions: Personal exemptions are eliminated.

Solid year-end tax planning is always good advice, but given the climate, this year it is imperative to take advantage of opportunities in your 2016 return that will likely be going away forever. 

1. Harvest the losses in taxable accounts. We usually advise tax-loss harvesting (taking a loss on a stock or fund before year-end), but if taxes go down next year and the NIIT is eliminated, you may save more by using the losses and keeping the gains until 2017.
2. Don't buy a gain. Be careful on purchasing a mutual fund in a taxable account before its distribution date. Mutual funds can build up taxable gain, including short-term capital gains that are taxed as ordinary income. If your rate goes down next year, the last thing you want to do is buy income at a higher tax rate this year. Check the fund before you buy into any taxable account.  This doesn't apply to regular or Roth IRAs.
3. Tuition and college. We don't know where these will fall on the new plan, but taking advantage of the deductions now makes sense if tax rates are going down and your income is staying the same. Subject to income limits, you can deduct student loan interest and tuition for yourself and dependents.
4. Defer income. If your income is a paycheck, this doesn't work. So not cashing your last paycheck doesn't pass the income into 2017: Your wages are taxed based on your W-2. However, if you own your business, receive commissions or are self-employed, you do have some control over billing and receipts. Monitor your income for FICA and self-employment; you could goof this up and pay a lot of FICA taxes.
5. 401(k). We normally suggest maximizing your 401(k), but this potential opportunity really makes it worthwhile.  When you contribute to the pre-tax portion of the 401(k), you are taking it off your income at today's rates.  You might be deferring today at 15%, when next year your rate might be 12%.  With higher incomes the difference is more dramatic.  If you are in the top tax bracket (congrats), your earned income is taxed at 40.5%.  If the law changes, you may be taxed at 33%.  That's a saving of 7.5% on every extra dollar.  Max it out.

"Every year, over 80 million Americans get an income tax refund and are delighted, and after reading these tips, hopefully you can see the value of pre-planning your taxes and making the most of your money," said LaBrecque. "This year we're in a situation that we haven't seen in about 40 years when the tax code was significantly changed. The time to take advantage of these tips is now, before it's gone forever."

Check out the free, interactive tool here to see exactly how these proposed reforms to the tax code will affect you. Note that taxes are complicated. Plan carefully and talk this over with your CPA or EA, but do it before the end of the year.

For more information on tax planning tips and services, visit http://ljpr.com/tax-planning-preparation/.

About LJPR Financial Advisors

LJPR Financial Advisors is a financial literacy focused wealth management firm headquartered in Troy, Michigan that helps people understand, get more, and manage money. For over 27 years the team of professionals has been strictly following the fiduciary standard while preparing the current generation for financial independence and exciting the next generation about smarter financial choices. LJPR specializes in individual retirement planning, investment management, executive financial counseling, nonprofit investment services, estate planning and tax planning. LJPR currently has over $653 million in assets under management as of 8/31/2016. www.ljpr.com  

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