Schemes to make the most of the GOP tax plan

Fareed Zakaria on the new tax bill

Whether or not one agrees with the wisdom of the GOP tax bill, if it becomes law (as it looks like it will, as of December 17th, 2017), then each taxpayer probably wants to make the best of it on a personal basis. Some of the strategies include: 

  • Giving to charities in 2017, assuming one won't be itemizing in 2018. One strategy is a "Giving Account" which is available at some investment firms. Make your donation now to the account--then parcel it out to charities in the future. Your deduction can be taken in the year the account is set up. 
  • Have a child...OK--this is risky business and rife with Unforeseen Consequences, but maybe your employer will take advantage of the family leave provisions that they can only deduct in 2018 and 2019.
  • Regarding inheritance tax (if you are among the 2/10 of 1% of folks who stand to inherit an estate worth $5.49 million or more--since those are the only estates that are taxed): have your benefactors die later rather than sooner...but make sure they die before 2026! For this interim time, the first $11 million will not be taxed--but it goes back to  "only" $5.49 million in eight years. 
  • Move to Alaska, New Hampshire, Texas, Florida, Nevada--or some other state that doesn't have a state income tax or high property taxes, since state income and local property taxes will not be deductible over $10,000 under the new plan. 
  • Make non-real estate asset swaps (1031 exchanges) this year, as the non-real-estate transactions will not be allowed under the new law. A 1031 exchange allows an entity to sell an asset and replace it with another without incurring a tax liability on any gain. 
  • Set up and use a 529 account--not just for your kids' college education--but also to send them to private elementary and high school. 
  • Turn yourself as an employee into a pass-through corporation in order to take advantage of a 21% income deduction in the GOP bill.
  • Of course : See an accountant to make sure that whatever strategy you think applies will actually will work to your benefit.

I, personally, am in a state where the income tax rate is high and the property taxes are a significant portion of housing expenses.  On my joint tax return, I have itemized deductions for most of my middle-to-upper-middle-class adult life--so I will have to do some "what-if" calculations to see how I should proceed in the future. I feel a bit aggrieved that the new tax law creates corporate tax rates that are lower than individual rates--especially because corporate tax-payers benefit in an extraordinary way from tax-supported infrastructure (roads, bridges, railroads, ports, police protection, fire protection, military protection). I am also concerned that the lack of support for home ownership in the current tax bill will de-stabilize the middle class and make it harder for the young to move up in economic status. Worst case, it will widen the divide between the extremely wealthy and The Rest Of Us. And create more debt. Alas. 

Nevertheless, I may personally benefit from the GOP tax plan--but just a little: enough to take the family out to a very fancy dinner, maybe. Or to pay an accountant to crank the numbers for a few different tax scenarios, in case I don't trust myself to do it right. 

I do encourage everyone to make the best of their own situation in light of the current reality, but also to work for other tax reform bills if this one doesn't seem to be the best the U.S. can do. 

Source: "Hacking the Tax Plan: Ways to Make Money Off the Republican Tax Bill," by Quoctrung Bui and Margot Sanger-Katz, New York Times, December 12, 2017. 

Follow up

  • How will the tax bill affect you, assuming that it passes? Will any of the hacks mentioned in the article help? Be specific in terms of the amount it will cost you or help you. If it will help you, what will you do with the extra money?
  • Discuss the pros and cons of "voting your self-interest" vs. "voting your conscience." If you were voting your self interest, would you vote for this tax bill, based on your short-term and long-term realities and aspirations?
  • If you were in charge of the U.S. as a whole, what would be the essential points in your ideal tax structure? Whom would it particularly benefit and why? Is balancing the budget a factor in your plan?