A Review of the Tax Cuts and Jobs Act – What You Need to Know, Now.
We've separated our recommendations based on the new tax reform law based upon taxes for individuals and taxes for businesses. Make sure to stay abreast of all ways you and your family will be impacted.
INDIVIDUALSTop rate dropping from 39.6% to 37%. These tax cuts are scheduled to expire after 2025, and there is no change to the preferential long-term capital gains tax rate. So what does this mean?
5 things to do before January 1st to lower your tax bill:1. Give more to charity in 2017. Have you been meaning to donate a couch to the Salvation Army or Goodwill? Or do you feel it’s about time to give a little more to your religious institution or alma mater? If so, get it done by year's end. It helps reduce your income this year when tax rates are higher. Plus, you might not end up itemizing next year since the standard deduction is nearly doubling.
If you take the standard deduction in 2018, you won’t get any tax savings from your charitable contributions.
2. Try to prepay your 2018 property taxes. If you own a home, you are familiar with property taxes. At the moment, you can deduct your local property taxes from your federal income tax bill, but starting Jan. 1, there’s a $10,000 limit on all of your state and local taxes, including property taxes.
Many people are rushing to try to prepay their 2018 bill now so they can take that extra deduction before the rules changes. It’s a tax trick that will only work for this year, but it’s worth trying.
Not all States accept prepayment. Check first!.
This also applies to prepayment of your State taxes. Prepay before year end to have it fall within the itemized deductions.
3. Make your business expenses now. If you pay union dues or a professional society membership fee (e.g. a chamber of commerce or bar association) or buy a lot of supplies for your job , you’ll want to buy everything you can by year's end. At the moment, people who are classified as employees can deduct a lot of their unreimbursed business expenses on their taxes if the total is more than 2 percent of your adjusted income. But that deduction is going away entirely in 2018.
4. Max out as many other deductions as you can. The general rule of thumb is: Try to take the credit or deduction in 2017. For example, teachers can get up to a $250 credit for buying supplies for their students. That’s not going away, but it’s still more valuable in 2017 than next year.
Another tactic is to try to prepay your home-equity loan interest. That deduction goes away next year, so it’s worth calling your bank and seeing if you can prepay at least some of the interest so you can get the tax savings in 2017.
Another deduction that’s going away in 2018 is for tax preparation services. Ask your accountant now for the invoice they would normally give you in April after they file your tax return. If you can pay it now, you can still deduct it.
5. Delay income until 2018 (if possible). It’s also a good idea to try to delay income until January when the tax rates are lower, especially if you are a small-business owner. So if you are chasing up some customers or clients to pay the bill you sent them awhile ago, you might want to wait until January to really get aggressive on collecting. In addition to lower tax rates, small business owners get a generous benefit starting next year of being able to deduct 20 percent of their business income tax-free.
Pass-through businesses, such as S corporations, LLCs, partnerships, and sole proprietors, will receive a new 20% deduction from their income. That benefit will be phased out for professional service businesses owned by individuals with taxable income of more than $157,500 (single filers) or $315,000 (joint filers). The deduction is equal to 20% of qualified business income. However, there are several limitations, including a limitation based on W-2 wages and assets relative to the qualified business.
This will greatly benefit individuals whose taxable income is below $157,000 and more modestly individuals whose taxable income is above the threshold. Ask us about more details on the calculation.