As you likely have heard, the United States is on the cusp of enacting landmark tax reform. These changes encompass the most notable overhaul of the tax code in over 30 years (known as the “Tax Cuts and Jobs Act”). Late last night, the Senate passed the reconciled tax bill that came out of Conference Committee, and the House did the same earlier today after a procedural glitch. The sweeping tax bill is now on President Trump’s desk for signature, which he is expected to do soon.
The size and complexity of the pending tax reform is too much to cover in a short piece – needless to say, there are numerous provisions affecting all types of taxpayers, including individuals, domestic and international business entities, trusts and estates, and tax-exempt organizations. At the bottom of this article are links to information about the bill, and you should anticipate more information from BrownWinick in early 2018 about tax planning considerations.
The intent of this article is to highlight certain tax planning opportunities made possible by the new tax reform legislation that are potentially available this year if you take action before January 1, 2018.
What You Should Consider Doing Before the End of the 2017 Year.
- Beginning in 2018, itemized deductions for individuals will be limited – in particular, the combined deduction for state and local income taxes and property taxes will be capped at $10,000. On the other hand, the standard deduction for married filing jointly taxpayers will increase to $24,000. Thus, the expectation is millions of individual taxpayers will begin utilizing the standard deduction rather than itemized deductions next year. What this means is that making 2017 estimated state income tax payments and prepaying state property taxes in 2017 could lower your 2017 federal income tax bill more than if you paid those same taxes in 2018. You should also consider how your 2017 alternative minimum tax (AMT) is affected by any such prepayment.
- This same tax planning opportunity of making 2017 estimated state income payments in 2017 may also benefit trusts that pay federal and state income tax but do not typically pay until the return is prepared and filed.
- Also because of the increase in the standard deduction in 2018, there may be little or no tax benefit to charitable contribution deductions in 2018 if individual taxpayers utilize the standard deduction. Individual taxpayers who anticipate using the standard deduction in 2018 should consider making additional charitable contribution deductions in 2017 (or accelerating charitable pledges that last beyond January 1, 2018) to maximize their tax benefit. Obviously, increased charitable contributions only apply if you have the funds and desire to donate to charities.
- Although most of the new tax provisions would not go into effect until 2018, one provision could potentially benefit you this year. That is, for certain qualifying assets, new and used, acquired and placed into service after September 27, 2017 (and no later than December 31, 2017) can be fully expensed in 2017 under the 100% bonus depreciation rules. This opportunity could offer a significant deductible expense in 2017 that would normally be recovered over a period of years.
- Finally, because there will be lower tax rates in 2018 for virtually all taxpayers, deferring income recognition to next year should be beneficial. For cash basis taxpayers, like individuals and most pass-through entities, simply not billing or receiving payment for products sold or services rendered is typically sufficient to defer that income.
If any of these tax planning opportunities potentially apply to you or you would like to discuss any other tax issues relating to these pending tax law changes, please contact your BrownWinick attorney or Chris Nuss at nuss@brownwinick.com or 515-242-2432. Thank you.
Links to Tax Bill Information.
A two-page summary of the policy highlights can be found here: https://rules.house.gov/sites/republicans.rules.house.gov/files/115/PDF/HR%201%20%5BCR%5D/TCJA%20Summary.pdf. The 570-page explanatory statement of the Conference Committee is here: http://docs.house.gov/billsthisweek/20171218/Joint%20Explanatory%20Statement.pdf. More information and guidance will be provided to you on the 2018 changes if and when the tax bill becomes law.