Today, President Trump signed the Tax Cuts and Jobs Act into a law which means there will be significant changes for millions of taxpayers effective January 1, 2018. In light of these changes, there are some things you can do before the end of 2017 that can benefit your tax situation this year and next. See our list below and, as always, please let us know if you have any questions.
- Accelerate Tax Deductions and Defer Income. The Act includes a decrease in tax rates. Individuals will have a maximum tax rate of 37% and corporations will have a maximum rate of 21%. With this decrease in tax rates, it may be beneficial to accelerate deductions for 2017 and defer income to 2018 and later, to the extent allowable.
- Pay State, Local, and Real Estate Taxes. The new law will limit combined deductions for state, local and real estate taxes to $10,000. Taxpayers that currently itemize and are not subject to AMT, who also expect to owe additional state and local income taxes for 2017, should consider paying before year-end. Even if you are subject to AMT, you still will get the state income tax deduction for any state and local taxes, so in many cases it still makes sense to go ahead and pay the tax by year-end. The Act does limit prepaying the 2018 state income tax, particularly when paying as an estimate at the end of 2017.
- Accelerate Buying Business Assets. The new law provides incentives for businesses to make capital investments. Businesses can write off 100% of the cost of certain qualified property placed in service after September 27, 2017 through bonus depreciation. The 100% rate applies to most personal property, such as equipment, furniture and computers, but the new law expands the definition to include used property where the old law only included new assets.
- Accelerate Charitable Contributions. Under the new Act, the standard deduction is doubled and many taxpayers will no longer benefit from itemizing their deductions. If you will not be itemizing your deductions in 2018, consider making your planned 2018 charitable contributions in 2017 to ensure you get the tax benefit of your contribution.
- Pay off Home Equity Lines of Credit. The Act repeals the deduction for interest paid on home equity lines of credit. If you are paying interest on home equity lines of credit, consider paying it off or down. Beginning in 2018, the interest will no longer be deductible. On existing regular mortgage loans, the new law preserves the deduction for mortgage interest on up to $1 million of loan principal. Under the Act, for new mortgages taken out on or after December 15, 2017 interest will only deductible on the first $750,000 of mortgage debt.
- Carry Back of Net Operating Losses. Under the old law, taxpayers that have net operating losses were able to carry back losses to offset taxable income for the prior two years or carry forward those losses for up to twenty years. Under the new Act, taxpayers will not be able to carry back losses. Net operating losses carried forward will only be able to offset 80% of taxable income. Businesses that are in a loss situation for 2017 or close to break-even may want to consider accelerating deductions into 2017 to maximize the current year loss. 2017 losses can still be carried back two years.
- Review Your Estate. The Act did not repeal the gift and estate tax as we had all hoped. It did, however, increase the amount you can transfer without incurring any gift or estate tax to $10 million for an individual ($20 million for married couples). Keep in mind that this provision only applies to tax years 2018-2025, so it is important to consult with your legal counsel and tax advisors to see how these changes will impact your estate plan. The current gift tax exclusion is $14,000 per donee and can still be utilized before December 31, 2017.
This information is general in nature. As every situation is different, please contact us before taking any specific action.