Year-End Tax Planning*
So yes, despite the judgy-ness of people on the internet about how apparently "stupid" it is, we prepaid our property taxes this last week. We still don't know if we'll be able to deduct them for sure, because no one knows for sure what will happen with a contradictory and sloppy tax bill pushed through at the last minute. What I DO know is that our state and local taxes (property taxes plus state withholding plus misc. fees) combined are over $20,000 annually, so the "advantage" of doubling of the standard deduction is completely negated by the new state and local cap. For potential savings in this first year, it was worth us to take that risk (and it will be awfully nice not to have to come up with that money in May, hard as it is right now to scrape it together.)
With $112 million prepaid property taxes in Hennepin County alone, we are not the only ones. Minnesota has been hit especially hard with this one.
While you are at it, if you are still escrowing your taxes, this is a good time to look at NOT doing that anymore. I cut that chain over 20 years ago and have never looked back. It's harder at property tax payment time, but it's important to me that I build interest and leverage on my funds for as long as I can, even if that means setting up a special savings account and putting aside the money I would have escrowed each month into it and building interest.
We're also donating as much as possible, even in small amounts, to non-profits we care about so we can deduct those. The ability to deduct donations is not a game-changer for us — we give because we care about the cause, and the deductibility at tax time is a nice bonus. I'm even contemplating that giving is an act of "resistance" in the future, along the lines of "we don't care about your tax bill." But I'm worried about how much this will hurt my clients.
It's too late for this year, but one way to maximize giving is to set up a small foundation, where your contribution is tax-deductible the moment you put money into the fund, and then you give from there. Our fund is through the Minneapolis Foundation (and it's about *this* big, so I know they allow, and even encourage, small funds). The Saint Paul Foundation is another good choice. I'm especially fascinated by a new model called GrowFund, which y friend Adriana specializes in setting up, if you need a connection. You can start a fund with as little as $25: https://mygrowfund.org
Speaking of donations, you still have time to donate $50 per person to a Minnesota candidate you believe in (which I assume means a progressive one, may I suggest Erin Murphy for governor if you are looking for one?) AND get it refunded 100%. This popular political donation refund returned this last June, and you can do it once per year, so do it now and then again in early 2018 when we invite you to a house party. http://www.revenue.state.mn.us/individuals/individ_income/pages/refund_for_political_contribution.aspx
In 2017, Minnesota added tax deductions and credits for 529 plans. The new tax bill seems to expand use of these plans to pay for K-12 education, though that seems to be fuzzy math since the entire point of a 529 plan is to start early and allow that money to build until college. In any case the new Minnesota deductions and credits are advantageous if you fund it to at least $1,000 a year, and got to ANY beneficiary (such as the grandparent who its money into a child's account).
If you have a high deductible health insurance, or an HSA, I assume you have already taken full advantage of that, but if you have not, you have 2 days. I'm sending Patrick off to the Minuteclinic as I write this to do exactly that and to check out what I assume is the flu.
One huge hit to the new tax bill will be if everyone decreases the amount withheld from their paychecks, basically starving tax income at the root (similar to escrow referred to above, this can bite you in the ass if you don't put money aside for it though). Basically, the higher your exemptions, the less is withheld. Patrick and I are likely changing our exemptions in 2018 to "resist" in this manner, though I don't necessarily think it will do much.
Pre-planning for taxes in the crazy holiday time is a real PITA, but I feel like this year it's especially important for us. What have I missed that YOU are doing to plan?
* I'm not a personal tax advisor, nor do I even play one on tv. These are strategies that we *think* will work for our family, in our personal situation. They may or may not work for you. Always talk to you tax person first. Side effects may be serious, blablabla...
With $112 million prepaid property taxes in Hennepin County alone, we are not the only ones. Minnesota has been hit especially hard with this one.
While you are at it, if you are still escrowing your taxes, this is a good time to look at NOT doing that anymore. I cut that chain over 20 years ago and have never looked back. It's harder at property tax payment time, but it's important to me that I build interest and leverage on my funds for as long as I can, even if that means setting up a special savings account and putting aside the money I would have escrowed each month into it and building interest.
We're also donating as much as possible, even in small amounts, to non-profits we care about so we can deduct those. The ability to deduct donations is not a game-changer for us — we give because we care about the cause, and the deductibility at tax time is a nice bonus. I'm even contemplating that giving is an act of "resistance" in the future, along the lines of "we don't care about your tax bill." But I'm worried about how much this will hurt my clients.
It's too late for this year, but one way to maximize giving is to set up a small foundation, where your contribution is tax-deductible the moment you put money into the fund, and then you give from there. Our fund is through the Minneapolis Foundation (and it's about *this* big, so I know they allow, and even encourage, small funds). The Saint Paul Foundation is another good choice. I'm especially fascinated by a new model called GrowFund, which y friend Adriana specializes in setting up, if you need a connection. You can start a fund with as little as $25: https://mygrowfund.org
Speaking of donations, you still have time to donate $50 per person to a Minnesota candidate you believe in (which I assume means a progressive one, may I suggest Erin Murphy for governor if you are looking for one?) AND get it refunded 100%. This popular political donation refund returned this last June, and you can do it once per year, so do it now and then again in early 2018 when we invite you to a house party. http://www.revenue.state.mn.us/individuals/individ_income/pages/refund_for_political_contribution.aspx
In 2017, Minnesota added tax deductions and credits for 529 plans. The new tax bill seems to expand use of these plans to pay for K-12 education, though that seems to be fuzzy math since the entire point of a 529 plan is to start early and allow that money to build until college. In any case the new Minnesota deductions and credits are advantageous if you fund it to at least $1,000 a year, and got to ANY beneficiary (such as the grandparent who its money into a child's account).
If you have a high deductible health insurance, or an HSA, I assume you have already taken full advantage of that, but if you have not, you have 2 days. I'm sending Patrick off to the Minuteclinic as I write this to do exactly that and to check out what I assume is the flu.
One huge hit to the new tax bill will be if everyone decreases the amount withheld from their paychecks, basically starving tax income at the root (similar to escrow referred to above, this can bite you in the ass if you don't put money aside for it though). Basically, the higher your exemptions, the less is withheld. Patrick and I are likely changing our exemptions in 2018 to "resist" in this manner, though I don't necessarily think it will do much.
Pre-planning for taxes in the crazy holiday time is a real PITA, but I feel like this year it's especially important for us. What have I missed that YOU are doing to plan?
* I'm not a personal tax advisor, nor do I even play one on tv. These are strategies that we *think* will work for our family, in our personal situation. They may or may not work for you. Always talk to you tax person first. Side effects may be serious, blablabla...
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