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Consumer Reports: 7 Key Tax Moves to Make Before Year's End

Consumer Reports: 7 Key Tax Moves to Make Before Year's End
(DreamsTime)

Thursday, 16 November 2017 04:46 PM

Despite uncertainty over the tax bill in Congress, you can take steps to improve your finances in 2017.

The House and Senate have their own versions, which differ on key provisions that GOP leadership eventually will need to resolve. But both proposals would make major changes in your taxes for 2018, including eliminating some itemized deductions, increasing the standard deduction, and altering tax brackets, Consumer Reports explained.

Except for a mortgage interest deduction cap in the House bill that would be retroactive for this year, all new income tax provisions would not take effect until 2018, according to the latest information released by lawmakers.

To be sure, the U.S. House of Representatives approved a broad package of tax cuts affecting businesses, individuals and families on Thursday, moving Republicans and President Donald Trump an important step closer to the biggest tax code overhaul in a generation.

The largely party-line 227-205 vote shifted the tax debate to the U.S. Senate, where that chamber’s separate plan has already encountered resistance from some Republicans. No decisive Senate action was expected until after next week’s Thanksgiving holiday.

However, it's important to remember these are still just proposals, and it would be risky to base a major part of your tax planning on what might happen, says financial planner Jim Holtzman of Legend Financial Advisors in Pittsburgh.

"Your best strategy is to focus on your tax planning under the current rules. There are opportunities to reduce your tax bill and improve your finances for 2017, whatever Congress does. And there's still time," Consumer Reports explained.

Here are seven key moves to consider before the year end, as explained by Consumer Reports.

1. Max out your tax-sheltered savings plans. Most people aren’t contributing enough to max out their 401(k)s, or even to get their full matching contribution. Only 10 percent reached the $18,000 limit for 2016, Vanguard data show, and only 12 percent of eligible workers took advantage of the $6,000 catch-up contribution permitted for those who are at least 50 during 2017.

2. Review your withholding. Take a look at the amounts withheld from your paycheck to guard against an unexpectedly large tax bill next year. Among the taxpayers who might find themselves falling short: those who started pension or Social Security payments; those who sold a large amount of assets with gains; those with a second job; and those who owe estimated taxes (and may have missed a payment).

3. Harvest your taxable losses and gains. If investments in your portfolio have taken a hit, there’s a silver lining. You can deduct those losses up to the amount of your capital gains, plus $3,000.

4. Bunch up your medical deductions. Many itemized deductions, including the break on medical expenses, may be repealed under the House tax proposal. Only about 6 percent of tax filers claim this break, which requires that medical expenses exceed 10 percent of adjusted gross income—and only costs above that threshold can be deducted. But for those that take this write-off, it’s an essential tax savings.

5. Give generously to charity. Because fewer tax filers would itemize under the GOP proposals, most would not be able to claim the charitable giving deduction. So if you want to give—and get a tax break for your giving—step up your charitable donations this year.

6. Take your required distributions. Once you reach age 70½, you generally must begin taking required minimum withdrawals (RMDs) from your 401(k)s, IRAs, and other qualified accounts. These amounts are taxed as ordinary income. You must take your RMD before Dec. 31, otherwise you will be hit with a costly penalty—half of the amount you were supposed to take, but didn't, plus the tax you owe.

7. Get a deduction for tax-planning help. For taxpayers, one of the most useful itemized deductions is the write off for tax planning and investment advice. This break can include fees for your accountant or financial planner, as well as the cost for computer programs such as TurboTax or H&R Block Tax Software. So if you haven’t turned to an expert for tax help before, this may be the year to do it—even if you can't get a deduction.

For his part, Trump, who is looking for his first major legislative win since he took office in January, went to the U.S. Capitol just before the vote to urge Republicans to pass the tax measure, which Democrats call a give-away to the wealthy and businesses, Reuters reported.

“Passing this bill is the single biggest thing we can do to grow the economy, to restore opportunity, to help these middle-class families that are struggling,” House Speaker Paul Ryan told lawmakers before the vote.

Congress has not thoroughly overhauled the sprawling U.S. tax code since Republican Ronald Reagan was president. The House measure is not as comprehensive as Reagan’s 1986 sweeping package, but it is more ambitious than anything since then.

The path forward for the tax plan in the Senate, where Republicans have a narrow majority, is fraught with political obstacles involving the federal deficit, healthcare and the distribution of tax benefits. Republicans can lose no more than two Senate votes.

Senate Republican tax writers made the risky decision to tie their plan to a repeal of the requirement for people to get healthcare insurance under former President Barack Obama’s Affordable Care Act. That exposed the tax initiative to the same political forces that wrecked Republicans’ anti-Obamacare push earlier this year.

The House bill, which is estimated to increase the federal deficit by nearly $1.5 trillion over 10 years, would consolidate individual and family tax brackets to four from seven and reduce the corporate tax rate from 35 percent to 20 percent.

It also would scale back or end some popular tax deductions, including one for state and local income taxes, while preserving a capped deduction for property tax payments.

Democrats have pointed to analyses showing millions of Americans could end up with a tax hike because of the elimination of popular deductions. Repealing or cutting some deductions is a way to offset the revenue lost from tax cuts.

(Newsmax wire services contributed to this report).

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You can take steps to improve your finances in 2017, despite uncertainty over the tax bill in Congress
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2017-46-16
Thursday, 16 November 2017 04:46 PM
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