December is the season for end-of-year tax planning, and the looming potential for individual income tax reform in 2017 – with proposals from both President-Elect Trump, and the House GOP – makes planning in 2016 more complex, but also potentially more beneficial.
The reason is that the tax reform proposals could enact substantial changes to the tax brackets themselves – with the most likely outcome being lower tax rates for most people – which makes it especially appealing to defer income into next year (when rates may be reduced), and maximize deductions this year (at the currently more favorable rate).
In addition, the House GOP proposal would eliminate many popular itemized deductions (keeping only mortgage and charitable), which further enhances the benefit of claiming any/every deduction possible, before the end of the year (and while it still lasts!)
On the other hand, President Trump has proposed to leave itemized deductions in place, but cap them (at $100,000 for individuals and $200,000 for married couples), which wouldn’t impact most people, but could have profound implications for those making large charitable gifts. Ultimately, it’s possible – and even probable – that a carve-out for charitable giving could be implemented, if the deduction cap really is imposed next year. But just in case, those who are inclined to make large gifts might want to seriously consider contributing to a Donor Advised Fund before the end of 2016, in order to claim the deduction this year without a cap (to the extent otherwise permitted under the current charitable contribution rules), and rely more on Qualified Charitable Distributions from IRAs in the future to navigate the potential deduction cap!