2017 Money Move: reviewing our tax strategy
December 18, 2017
Last month, I had a brief conversation with our tax person to run some numbers for our 2017 taxes, but we didn’t come up with much more we could do to become more tax efficient other than more charitable giving. Then along came Nicole and Maggie with a reminder that I hadn’t considered bunching our property taxes and I’m so glad they did.
If we don’t bunch them, our 2017 property taxes will be $8,500, $10,780 in 2018, and $10,420 in 2019.
If we do bunch them, they will be $14,020 in 2017, $5,210 in 2018, and $15,630 in 2019.
Our other relevant assumptions:
1. Expected mortgage interest for 2017: $19,865.43, approx expected morgage interest for 2018: $26,506.08
2. Drop Dad from list of dependents starting 2017
3. Drop Brother from list of dependents starting 2018
4. My W-2 income will probably be static for another year since I got a raise this year, PiC’s will probably go up about 3-5%. Stupid small companies *grouse*Our CPA ran the numbers and came back with the good news that based on what we know now about tax code, it’d be more advantageous to bunch our property taxes. Of course that means coming up with a hell of a lot more money by the end of the year.
That would normally be a big fat gulp but thankfully I set aside an extra large sum of cash from our home sale to cover my guesstimated taxes so we can afford to make this choice, this year. Over three years, it looks like we’ll save $700 by bunching our taxes so I’m taking that large sum and blowing it all on property taxes. Woohoo! Exciting times here at Casa de Revanche.
We’ll also make some year-end charitable contributions because it’s the right thing to do, and not just because we want to decrease our taxable income. Our cash flow is T-I-G-H-T but I have a list of places we want to donate as soon as I can free up the cash: our local animal shelter, the breed rescue we got Doggle from, the homeless shelter, the Hispanic Federation for Puerto Rico. We already made donations earlier in the year to help after Hurricane Harvey, and to our local homeless shelter.
I hate being uncertain about the upcoming year even though you would think that the entirety of 2017, and much of 2016, would have taught me to be in the present and stop trying to plan everything single thing ahead. I’m referring to the tax code, of course, and what terrible things are going to be pushed through at whose expense.
Quick update to say that it looks like we may still get to deduct charitable donations but our property tax deductions are likely to be much more restricted so I may well be glad that we decided to bunch this time. More when my favorite tax blogger, Kay Bell at Don’t Mess with Taxes, gives us a more in-depth look.
I bunched a lot of charitable giving into 2017 since who knows what’s going to happen with itemized deductions in 2018. Since I’m right over the AMT, I can’t prepay my property taxes (but if I had thought of it, it would have been a really good idea).
Would prepaying the property taxes have made much of a difference for you?
You’re right, it wouldn’t have made much of a difference. It would have offset some charitable contributions from 2017 to 2018, which may have meant more time to consider/more flex in donations, but that’s not all that steep a cost.
š That mortgage interest total! And property taxes! I’m sorry. Here I am considering how our property taxes and HOA dues are likely going up about $2000 next year over this year (which is about a 25% increase, bringing that total to about $11,500 and trying to refinance our mortgage out of the 4.125% the ARM is resetting to and even assuming 4.125% for the remainder of the balance, we “only” have $25,540 left in interest. Refinancing looks like it’ll save us about $5000 in total interest over the next 10 years. We’re trying to be prudent here as the balance will in 2018 go smaller than most places will give you a reasonable interest rate, so this is likely our last chance to refinance.
We can’t bunch property taxes – we only get the bill each year in February. We can then pay half in April and half in October or all in April. So no bunching allowed there.
It looks like we are going to save a lot in taxes next year with the bill as it looks, which I hate. Our marginal federal tax rate is going from 33% to 24%. (Plus the net investment income tax and the extra Medicare tax.) It looks like we can keep doing Backdoor Roth IRAs from my current understanding? But we will likely never itemize again, so we won’t bunch charitable donations and will just donate for each year at a time. I briefly contemplated bunching some charitable contributions into 2017, but we’re far enough from the standard deduction that it wouldn’t be worthwhile really. I’m now wondering if we should be considering Roth 401(k) contributions versus the pre-tax ones we’ve been doing since at 24%, I’m not as convinced that our tax rate will be lower in retirement. Things to ponder.
It’s ugly, isn’t it??
I’ve almost gotten my head around our interest and taxes, but that’s a huge reason why I’m so interested in prepaying as much as we can until it’s down to a level that’s more manageable and not the cost of a house twice over in interest alone!
I used to hate the way our tax bills were structured but it does give us some options.
Let me know what you end up deciding!
I just sent off our second property tax check today since the tiny benefit we get from being over the deduction this year outweighs the complete lack of benefit from itemizing next year under the current tax proposal. So (ironically) no bunching for us. š We also bunched some of our annual giving this weekend because we won’t be getting any benefit from it next year.
Leigh reminds me that I should get around to switching all my 403(b)/457 Roth contributions to Traditional. Hm, and I haven’t seen if the not allowing investing the full amount in both got put back in since it wasn’t in the senate version. I guess I should either figure that out or wait for stackingpennies to figure it out for me. š
I’m relying on you ladies to catch details that I’ve missed! š
I’d like to do a bit more giving this year while it’s going to do us any good, too if I can squeeze it out of the budget.
I tried to bunch our taxes, but we are too close to the AMT. Maybe I could pay part of the bill this year? It wouldn’t make a huge difference though. Since we’re likely to continue to itemize, we did a standard charitable donations.
We accidentally pre-paid a bunch of state taxes by overwitholding, and I’m honestly not sure how that is going to shake out since they are deductible this year, but likely won’t be next year (since we have to choose between state or prop tex). I should look into if there is any way to take advantage of that. No CPA for us…
The latest online calculators show that our tax bill is about $1,500 higher under the newest plan, which isn’t as bad as I feared but really not good, especially considering the reduced tax brackets sunset for individuals. BESIDES THE FACT THAT THE BILL IS COMPLETE GARBAGE.
I’m glad you were able to maximize your tax $$!
OK, I looked at this again. If I did this right… we’d only pay a very small amount of AMT to pay property taxes early (<$200) this year and we'd save much much by bunching our property taxes.
Our taxes bill next year would be neutral – I think we'll hit the new "10k SALT+PT" deduction in any case. As long as it is a "plus" not an "or", which I think it is
Hmmm…. I think this has to do with my late changes to retirement savings levels, or I just wasn't smart enough last time I looked at this… OK, 13 days left to figure it out and finalize this.
I’m fast running out of brainpower too.
Ugh, our SALT deduction in 2016 alone was over $10,000 so it looks like we’re taking a bath on the new deduction limit after all.
Ugh. It looks like I should pre-pay my taxes this year, too. That way I’ll get at least one year where I can deduct all of my state taxes and property taxes. Not sure if I can really make bigger charitable contributions this year, but that’s something I’ll be figuring out at the last minute when I know what my last paycheck of the year will be. This year (like the last two years) has been complicated by my periods of short term disability. The state SDI and work insurance benefit that replaces income SDI doesn’t cover aren’t taxable income, but the insurance benefit is paid out in a weird way. I get paid my normal income as soon as my SDI period starts, then work slowly deducts the amount I received from the state. Having all that activity happening in my December pay periods complicates things.
Yes I’m not loving how down to the wire it feels like the money situation is this year, especially with the changes coming down the pipeline for next year :/ I’m glad you’re able to prepay this year though. Had the timing been different on even one of our house things, we wouldn’t have been able to!
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