As 2017 winds down, it’s time to consider making some moves to lower your federal income tax bill and position yourself for tax savings in future years. This year, the big unknown factor is whether major tax reform legislation will be enacted.
Even if all goes according to the GOP timeline, the changes generally won’t take effect until 2018, so 2017 returns will follow the current rules. Here are several strategic year-end moves for you to consider as Congress works on consolidating the House and Senate bills.
I: Prepay Your 2017 Real Estate Taxes
Your first payment of 2017 Real Estate taxes are likely due in early 2018. However, in the tax reform proposal, federal deductions for state and local taxes are on the chopping block. It may be beneficial to pay your 2017 taxes before December 31, 2017 in order to claim the deduction.
Pre-payment guidelines vary by state and even vary at the county level, so be sure to reference the procedure for your county or consult with your tax advisor. Since many people pay their real estate taxes from escrow, you will also need to notify your escrow holder.
Step by Step instructions for prepayment are located at the bottom of the article.
State and Local Income Tax
You should also consider prepaying state and local income taxes that would otherwise be due in early 2018. This will increase your itemized deductions for 2017, thereby reducing your federal income tax bill for this year.
One Caveat – BEWARE OF AMT
If you’ll owe alternative minimum tax AMT for 2017, the prepayment strategy may backfire. That’s because write-offs for state and local taxes are completely disallowed under the AMT rules and so are miscellaneous itemized deductions subject to the 2%-of-AGI rule. So prepaying these expenses may do little or no tax-saving good for those subject to AMT.
II: Think Strategically About Charitable Contributions
The proposed tax reform legislation will double the standard deduction, thus making fewer people choose to itemize their taxes to take advantage of the deduction for charitable giving. Accelerating tax-deductible charitable donations that you would otherwise make next year can reduce your 2017 federal income tax bill. Additionally, charitable deductions claimed this year will be worth more than deductions claimed next year if your tax rate goes down in 2018. This is a likely scenario for most taxpayers if tax reform proposals are enacted.
You may want to structure your giving by setting up a donor-advised fund. This type of structured giving may allow the maximum tax benefit for your long term charitable contributions. A DAF is set up at your charity of choice with a lump sum contribution (with an immediate tax benefit) and is then dispersed at your direction over several years.
If you plan on making a charitable contribution by gifting stock, it is wise to plan accordingly. In the past you were able to choose whether to gift the low-basis or high-basis shares of a held security. You were able to gift your low-basis shares to avoid payment of tax on the gain, while keeping your high-basis shares. If the Senate bill prevails in reconciliation, you will no longer be able to choose.
Right now, nobody is certain whether major tax changes will be enacted or when they’ll go into effect. These strategies are worth considering regardless of whether tax reform happens. As Congress works on bill reconciliation, stay in touch with your tax advisor at Weiss & Company. We are continuing to monitor tax reform developments and will help you take the most favorable path for your unique situation.
Real Estate Tax Prepayment Instructions for Cook and Lake County, IL
How is the First Installment Calculated?
The First Installment is an estimated bill equal to 55% of the prior year’s total tax. A law passed by the Illinois Legislature in 2009 raised the First Installment tax from 50% to 55% of the prior year’s total tax (or 55% of the adjusted tax if an assessment certificate of error is certified by the previous November 30). Second Installment tax amounts vary. For this reason, you cannot prepay the Second Installment, and you should never double the First Installment amount and expect it to be credited to the Second Installment.
If You Wish to Participate in the Prepayment Program
To request a prepayment bill, send a written request (by mail or email) separate from any tax payment by early December that includes your mailing address and Property Index Number (PIN). Requests by mail should be sent to:
Cook County Treasurer
118 North Clark Street, Room 112
Chicago, IL 60602
If your prepayment is received by December 31st, the First Installment tax bill which will be mailed in late January will reflect the prepayment. If the prepayment is received after December 31st, the regularly mailed bill in January may not reflect the prepayment.
- Make checks payable to the Cook County Treasurer.
- Make sure your name, address, PIN, phone number, the word “Prepayment” in the memo line, and, if available, your email address, are all on the face of the check(s).
- Submit only one check per original payment coupon for the exact amount. Overpayments will be returned, as will any individual check submitted for multiple PINs.
- Your canceled check(s) will serve as your receipt(s).
- Prepayments for the upcoming First Installment taxes can be accepted only if the prior year’s taxes have been paid in full. You may verify your payment status by selecting Payment Status.
Prepaying by Mail
Your payment must be postmarked by December 31st, to be reflected in the regular bills that will be mailed in January. Send the payment with the original tax bill payment coupon to:
Cook County Treasurer
PO Box 805438
Chicago, IL 60680-4155
Prepaying in Person
You may submit your original payment coupon and payment at the Cook County Treasurer’s Office.
- Payments accepted for the next tax year.
- Amount can be no more than the present year taxes.
- December 1 – December 29 only. We do not accept postmark.
- Make checks payable to the Lake County Treasurer.
- Note Pin # on check.
- Indicate Pre-Payment on your check.
- Check with your accountant before making payment.
Note: Refunds will be given only if the taxes calculate less than the Pre-Paid amount.
Mail checks to:
Lake County Treasurer
18 N County Street
Waukegan, IL 60085
Check your County Treasurers website and search for prepayment.