Year-End Planning: Emergency Edition ’17

I’ve been trying to write this missive for months.  This is definitely not your typical year-end on either the tax or investment fronts.  Congressional leadership has surprised me and most other observers by passing a tax bill with major changes, and we are only now getting enough detail to understand the radical changes that are only weeks off!

The stock market also looks to be turning in a strong performance for 2017.  Many of us fear that it is now overvalued, with implications for both your investment portfolio performance and your 2017 tax returns.

So, here are my thoughts on year-end planning.

Tax Planning:

As of today, it appears that the Congressional Republicans’ tax bill will pass and be signed into law this week.  The way we calculate taxable income will change for the next 8 years!  Your federal taxes may go up, down or sideways.

There have been some calculators out; so far I’ve found them largely meaningless.  I expect to have one available for tax season.  For now, I ran a few random returns with the major changes.  It appears that *most* middle income clients will have higher taxable incomes, but lower net income tax.  Lower income folks *should* see lower taxes.  Some of your taxes will go up!  Contact me to see if yours was one I ran – or I can do that if you ask nicely.

Highlights that bear on planning right now (as in, before year-end):

RATES:  The same number of tax brackets (7), but all over 10% are down about 2-3% (15% bracket is reduced to 12%); some bracket shifts may mean higher rates on part of your income.

EXEMPTIONS:  They are eliminating the personal exemption in 2018.  This could be bad news for anyone with multiple children or other dependents (older kids, parents, etc.).  The increased standard deduction does not cover this loss for anyone except singles.  A small new credit will not either.

ITEMIZED DEDUCTIONS:  They have substantially reduced allowable deductions.  In a blow to residents of the coasts and somewhat to Ohio & Kentucky, state & local tax deductions are limited to a total of $10,000 in income & property tax combined.  See details below.

The standard deduction will not quite double, so not a replacement for the loss of exemptions.

CHILD TAX CREDITS:  There will be an increased child tax credit, but only for children under 17.  Income phase outs will increase, so that’s good news with anyone with kids & income $110,000 – $400,000.

BUSINESS INCOME:  It appears that some of you who are self-employed or freelancing may pay significantly less income tax but the details are complex; for most of you, 20% of your business profit will be exempt from income – not self-employment – tax.

PLANNING TIP: It may be worth pushing invoicing off until January to the extent you still can. You can’t avoid reporting it by just not depositing a check.



  • State & local income & property tax deductions will be limited to a $10,000 aggregate total. (If your income taxes are $6,000 and your property tax is $6,000, the deduction will be $10,000.) This will be a mixed bag in Ohio & Kentucky – and bad on the coasts.  The effect will depend on your income & how much property tax you’re paying.
  • Home equity loan interest will no longer be deductible.
  • Unreimbursed *employee* expense deductions will be repealed. Note that this does not affect business deductions, only those employees like salespeople who don’t get reimbursed for mileage, etc.
  • Other Miscellaneous Itemized deductions will all be repealed, including tax preparation fees, legal fees, investment fees, gambling losses, etc.
  • Undoubtedly, some of you may no longer be itemizing deductions, so you’ll see reduced or no tax effect from your taxes & charity in 2018.


  1. Pay your 4th quarter 2017 state & city estimated taxes in December. Pre-paying 2018 is specifically not allowed.
  2. Consider paying at least the first installment of 2018’s property taxes, or all of it.This is not disallowed.
  3. Accelerating 2018 charitable contributions may pay off.
  4. For longer-term planning, if you want to make all your 2018 contributions – and maybe 2019 & beyond, you should consider a charitable donor-advised fund. DAF’s are a type of low-cost trust arrangement that allows you to take the deduction now and actually send the money out later.
  5. Definitely get your noncash charity (Goodwill) out of the house before year-end!

ALTERNATIVE MINIMUM TAX:  Changed, but not repealed.  You may no longer pay.  Call for details.

 OTHER ISSUES:  Alimony will not be taxable or deductible beginning with 2019 divorces.  Corporate rates, Estate (“death”) tax reduction are also in the bill, but those don’t affect real people we know, so I’m not covering them here.


  • Dependent Care Credits & Flexible Spending
  • Education credits
  • Student loan interest (for those within the income limits)
  • Teacher expense deduction
  • Adoption Assistance (tax free employer reimbursement & credit)
  • Tuition waivers (for University employees, families & grad students)
  • Exclusion of gain from sale of home (still 2 of 5 years)
  • 401(k)’s: There were rumors they might try to restrict or even eliminate pretax contributions


We don’t know how to start changing W-4’s, but will need to do that soon – especially for those of you whose taxes will increase.  Restructuring withholding should be on IRS’s short list.  Correcting yours is on mine.

Oh, and it’s all temporary – to 2025 – except the corporate tax reductions, which are permanent.

Please call if you want to discuss any of this.  If I get useful updates, I’ll post them here.   I’ll also post good links on my business Facebook page.  So watch the news, but pay attention to your sources.  There’s a *lot* of noise out there that just isn’t true either because of deliberate bias, or lack of understanding by those reporting.

Here are a few links to readable, reliable blogs (even then, not gospel; nobody’s read all 1,097 pages yet):



Many actively managed (not index) mutual funds will be reporting large capital gains – which you will need to report as income even though you haven’t sold the fund(s). (The gain should be more-or-less reflected in your current market value.)  A large number of funds will be reporting income of 10% or more of market value and some even 20%+.

Those of you with incomes in the lower brackets may pay no tax on these, as the 0% capital gains rate applies.

  • If your income puts you in or above the 25% bracket, you’ll pay 15% on the gains.

The stock market has soared in the past few years, and many of you may be selling to take gains. The above comments about long-term capital gain tax apply.

Please review the risk level in your portfolio. If the market “corrects,” you don’t want to be taking more loss than you can stand!  Call if you want help with that.  We have limited time before year-end (more in January) but should be able to review your investments and suggest a few adjustments.

Looking forward to seeing you all soon – and perhaps hearing from a few of you sooner.  Happy Holidays!

Sarah Crawford