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Tax Planning Strategies for Individuals in 2017
By Eric Hananel

The political uncertainty surrounding Donald Trump will likely have a significant impact on individual tax planning. It is still unclear how Trump’s tax plan will be implemented and whether it will be approved of by the House Republican leadership. Adding to tax preparation uncertainty are other unknown factors including the 2017 rate structure, the repeal of Obamacare and the impact on the net investment income tax (NIIT), and limitations on deductions dictated by the alternative minimum tax (AMT) including the possibility of its repeal in 2017.

Trump and the House of Representatives have vowed to abolish the AMT, which was originally implemented to target the wealthy but now impacts more than 4 million upper-middle class taxpayers each year. While the Trump tax plan along with the abolishment of the AMT could alleviate this burden on the middle class, it would likely mean a significant shortage in Treasury funding. Thus, individuals should be prepared for tax changes elsewhere to mitigate this loss in revenue.

If these changes do in fact occur, we don’t know when they would take effect. With so many unknown factors, tax planning and preparation for the year ahead becomes increasingly complex. (For related reading, see: Things to Do Now to Plan for a Trump Tax Cut.)

Tax Planning for Top Bracket Individuals

With the pending change in administrations, tax planning in early 2017 is critical. The general consensus is that tax rates will be lowered in 2017 and that the currently available deductions will be either eliminated or significantly limited. As a general rule, it is optimal to defer income and accelerate deductions. You can defer compensation income by requesting that your employer pay your bonus and any other fringe benefits in the New Year. These are a few ways to accelerate deductions and defer income:
  • Distribute funds from an IRA directly to charity.
  • Make contributions of appreciated long-term gain property.
  • Prepay property as well as state and local taxes, if this does not subject you to the AMT.
  • Group miscellaneous itemized deductions, as long as this does not subject you to the AMT.
  • Consider grouping your medical expenses in 2017 to maximize the tax benefit.
  • Capital loss harvesting: generate enough capital losses to offset gains plus $3,000.
  • Maximize IRA, 401(k) and retirement plan contributions.
  • Defer conversions to a Roth IRA until 1/1/17—this will enable you to have the ability to re-categorize the conversion back to a traditional IRA as late as 10/15/18 should the value of the investment decline.
  • Defer any initial required minimum distribution (RMD) until 2017.

Tax Planning for Others and for Longer-Term

When planning for multiple years, tax brackets become much more important. One planning strategy is to utilize Roth conversions, retirement distributions or capital gains to generate income in situations where the individual has negative income or negative taxable income. Another consideration is utilizing withholding on year-end retirement distributions to avoid underpayment penalties. It’s also worth noting that the home mortgage interest limit is per taxpayer, rather than household. The revised 1098 for 2017 includes the date that the mortgage was established as well as the principal balance at the beginning of the year.

While there are rules and strategies to help guide you, the intricacies of tax planning and preparation will differ by circumstance and individual. The strategies discussed here only scratch the surface of tax deductions and allowances, and will not reflect recommendations to address changes made by the new Congress or new administration. (For related reading, see: A Trump Estate Tax Repeal? Not So Fast.)

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