This is Rob, your tax guy, with important information about the new Christmas present from your President. Seasons Greetings!
Although most of the provisions of the Tax Cuts and Jobs Act don’t go into effect until next year, there are some important year-end actions you may be able to take to keep from losing some of your deductions.
I have spent the last 2 days reading the bill and studying the issues, and this email is to alert you to these actions.
To use this email effectively, print out and have ready these pages from your 2016 tax return: Form 1040 pages 1 and 2, and Schedule A. The important numbers to have in mind are state and local taxes (SALTs) (line 9 of your Schedule A), total itemized deductions (line 29 of schedule A), and Alternative Minimum Tax (AMT) (line 45 on page two of your 1040).
If you don’t itemize deductions and don’t have a Schedule A then there may not be much you can do this year that affects your tax burden unless you bought a house in 2017 or have some other reason to expect to be itemizing deductions for 2017. But read on anyway.
MOST LIKELY ACTION TO AFFECT YOU – If you itemize deductions, your deduction for SALTs will be limited to $10,000 in 2018. Look at line 9 of your Schedule A. If it is more than $10,000, you may benefit by paying the second half of your property tax bill, or your last state estimated tax payment (or both) before the end of 2017.
But this strategy doesn’t help if you pay AMT – as shown on line 45 of the 1040. This is the most important action to consider before the end of the year.
A deduction of $5,000 or more could be lost forever, costing you up to $1500 of income tax. If you think you should do this, you are welcome to call me to check for you. 707-888-3676. Have your return handy in case I’m not in the office when you call.
Other information that may lead to tax-saving decisions this week.
Tax rates are dropping in 2018.The rate drops are different in each bracket, but most taxpayers will see an overall drop of 3-4%.This means that you can save tax by accelerating deductions into 2017 or deferring income into 2018.
However, the savings are minor so don’t knock yourself out.If you can manage to move $10,000 from 2017 to 2018, you might save $300-$400 overall.No big deal.However, paying your January mortgage payment in December and prepaying 2018 charitable deductions are easy ways to take advantage of this that aren’t too complicated.
Standard deductions are going way up – $24,000 for joint returns, $12,000 single, and $18,000 head of household.These are roughly double what they used to be, meaning that many more taxpayers will not be itemizing deductions.If your total itemized deductions are less than the new standards, you will no longer benefit from itemizing.
So get your deductions in this year before the change – make next years charitable contributions this year; go to the thrift shop.Do it.
There is a new 20% deduction for income from a pass-through entity or sole proprietorship.To some extent this weakens the advantages of a subchapter S corporation and may make it better to be self-employed than to be an employee.If you have an opportunity to become self-employed, 2018 would be a good year to look at the possibilities.To take full advantage for all of 2018, you may wish to incorporate before the end of the year.
The deduction for alimony payments is phasing out for agreements executed after December 31, 2017. Accordingly, the recipients of alimony will not have to treat it as taxable income.Agreements in place are grandfathered in, so if you are in the process of completing an alimony agreement, you may wish to accelerate the process.If you do not complete the signed agreement before January 1, 2018, you should take this tax change into account in determining the amount of alimony, since the payor will be using after-tax dollars.
First-year expensing of equipment purchases is greatly expanded in 2018.It applies to both new and used property (previously only new property qualified), and the limits are greatly increased.Some businesses that buy a lot of equipment may wish to delay delivery of large used equipment purchased until 2018 to take advantage of the 100% expensing without having to use the Section 179 deduction.
The like-kind exchange provisions are being limited to only real property. Under existing law, if you traded in a business vehicle that had been depreciated, and your trade-in allowance is greater than your depreciated basis, you have a gain that is NOT TAXED, but simply used to reduce the depreciation basis of the new vehicle.Under the new law, you have to report the gain on the sale and then start depreciating the new vehicle at its full basis.You may wish to complete the trade-in this week.
The deduction for entertainment is eliminated in 2018, so take a client to that Warriors game this week if you want a deduction.They’re playing the Jazz on Wednesday, the Hornets on Friday, and the Grizzlies on Saturday.There are even a few tickets left for the Cavaliers on Christmas Day.
While the 50% deduction for food and beverage expenses related to a trade or business is being retained, the 100% deduction for meals provided on-site to employees (like stocking your office kitchen) is cut back to 50% after December 31, 2017.So stock the company kitchen on New Years Eve to preserve the 100% deduction.Stock up on coffee and tea, soft drinks, Guyaki, Kombucha, or whatever else you offer to employees (and yourself). See you at Costco.
Unreimbursed business expenses and other miscellaneous itemized deductions (Schedule A line 27) are repealed under the conference agreement.If you are an employee, and have these type of unreimbursed expenses, stock up this week before the deduction is lost.We’re talking a new cell phone or laptop used for work, or even possibly a new vehicle.
Call me to discuss these options if you qualify and are not in AMT (Form 1040 page 2 line 45 is -0-). You may also pre-pay your 2017 tax preparation fee to get the deduction in 2017……I’ll be glad to help you out there.
There are many other provisions of the new bill, but these are the only ones I could find that you might use to your advantage before the end of the year. I’ll keep you up to date on what else I find. Watch this space and have a Merry Christmas or Happy Holiday.
Robert Kirby CPA PC