You may want to pre-pay your 2017 itemized deductions in 2016.
1. Federal ordinary income tax rates are proposed to go down, meaning the value of deductions are lower.
2. The standard deduction is proposed to go up, meaning your deductions may not be used in 2017.
- From $6,300 to $15,000 (single)
- From $12,600 to $30,000 (married filing joint)
3. Charitable gift deductions could be cut.
- Prepay 2017 gifts.
- Contribute to a Donor Advised Fund: *see below
- Take current deduction
- Invest funds
- Distribute to charities over time
- Can contribute appreciated assets taking a deduction for value, but no tax on appreciation.
4. State and local income tax deductions could be cut.
- Prepay 2017 real estate taxes.
- For those who pay alternative minimum tax, prepayment will not help.
*A donor-advised fund is established through a charitable foundation, which allows donors to make contributions in a separate account, which qualify for an immediate tax deduction, with the funds to be distributed to the charities of the donor’s choice at later date.