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Don’t Wait for Year-End — Here are some Mid-Year Tax Planning Strategies

07.31.17 | TAX Chat

In the quest to reduce your tax bill, year-end planning can only go so far. Tax-saving strategies take time to implement, so review your options now. Even though uncertainty hangs over the timing and content of potential tax reform legislation, you can still take steps now to minimize your tax burden. Here are three strategies that can be more effective if you begin executing them mid-year:

  1. Consider Your Bracket

The top income tax rate is 39.6% for taxpayers with taxable income over $418,400 (singles), $444,550 (heads of households) and $470,700 (married filing jointly; half that amount for married filing separately). If you expect this year’s income to be near the threshold, consider strategies for reducing your taxable income and staying out of the top bracket.

Example: Take steps to defer income and accelerate deductible expenses. This strategy can save tax even if you’re not at risk for the 39.6% bracket or you can’t avoid the bracket. This strategy is especially important if it appears that tax rates will go down for your income level, since deductions are more valuable at higher tax rates.

You could also shift income to family members in lower tax brackets by giving them income-producing assets. However, this strategy won’t work if the recipient is subject to the “kiddie tax.” Generally, this tax applies the parents’ marginal rate to unearned income (including investment income) received by a dependent child under the age of 19 (24 for full-time students) in excess of a specified threshold ($2,100 for 2017).  There may also be potential gift tax consequences for transferring assets to family members.

  1. Examine Your Investment Income

This year, the capital gains rate for taxpayers in the top bracket is 20%. If you’ve realized, or expect to realize, significant capital gains, consider selling some depreciated investments to generate losses you can use to offset those gains. It may be possible to repurchase those investments, so long as you wait at least 31 days to avoid the “wash sale” rule.

Depending on what happens with health care and tax reform legislation, you also may need to plan for the 3.8% net investment income tax (NIIT). Under the Affordable Care Act, this tax can affect taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,000 for joint filers). The NIIT applies to net investment income for the year or the excess of MAGI over the threshold, whichever is less.

So, if the NIIT remains in effect, you may be able to lower your tax liability by reducing your MAGI, reducing net investment income or both. A prudent taxpayer will continue to plan for this tax unless it is definitely repealed by legislation signed by the president, since the status of potential repeal has changed with almost every iteration of health care legislation, and could also be impacted if tax reform legislation passes later this year.

  1. Plan for Medical Expenses

The threshold for deducting medical expenses is 10% of AGI. You can deduct only expenses that exceed that floor. The threshold could be affected is there is any health care legislation.

Deductible expenses may include health insurance premiums including Medicare Part B premiums deducted from your benefits (if not deducted from your wages pretax); long-term care insurance premiums (age-based limits apply); medical and dental services and prescription drugs (if not reimbursable by insurance or paid through a tax-advantaged account); and mileage driven for health care purposes (17 cents per mile driven in 2017). You may be able to control the timing of some of these expenses so you can bunch them into a single year so that you exceed the applicable floor in that year.

These are just a few ideas for slashing your 2017 tax bill. If you have questions, I can be reached at Tkruger@BerdonLLP.com  or contact your Berdon advisor.


Thea Kruger, J.D., LL.M, a Tax Principal at Berdon LLP New York Accountants, has more than 10 years of experience in public accounting. Thea provides tax planning and compliance services to partnerships, corporations, trusts, and high net worth individuals.