Now that it appears congress is on the cusp of (finally) formalizing a comprehensive tax reform package for 2018, we are getting some clarity on what many of the final provisions of the bill are looking like. Many taxpayers are expected to see a decrease in overall tax rates starting with the 2018 tax year. Additionally, some deductions are being greatly modified or eliminated which puts many of us in a position to make choices before the end of the year on how to best position ourselves to avoid losing deductions by making payments in the correct year. The interesting thing about this bill is that different taxpayers will be affected in wildly different ways. There will be winners and there will be losers. Each situation is unique. Though we are running out of time, we are assisting clients as best we can right now. Please do reach out to your Wheeler Accountants advisor for specific tax advice applicable to your situation.
The following is a list of general advice that may be applicable to you:
- The tax bill would place a cap on the state and local tax (SALT) deduction (combination of state income or sales taxes and real property taxes) at $10,000 effective for the 2018 tax year. This is a big change for taxpayers in our area who generally pay both high state income taxes as well as property taxes. Prepayment of your April 2018 property tax installment and any Q4 California estimated tax or projected California balance due for 2017 before December 31st is looking like the smart move here. While many taxpayers in AMT may not see much benefit from doing this, many will see at least some benefit.
- Acceleration of itemized deductions such as charitable, medical, or miscellaneous itemized deductions into 2017 may make sense. This is especially true if you are expecting income to stay the same or go down next year, or your expected itemized deductions in 2018 (factoring in a cap on the SALT deduction of $10,000) will be less than the standard deduction proposed for 2018 ($24,000 for married taxpayers, $12,000 for individual)
- Prepayment of your January mortgage payment before December 31st may make sense. The tax reform package proposes to limit deductible interest on mortgages over $750,000, but debt incurred before December 31, 2017 would be grandfathered in and retain the current $1,000,000 limitation. The additional $100,000 limitation on home equity loans will likely to go away.
- With taxpayers that have control over business income or deductions, the general advice of deferring income and accelerating deductions likely holds true.
- The market is at all-time highs, but “harvesting” tax losses before 12/31 could result in tax savings
- For corporate taxpayers, accelerating deductions into the current year in anticipation of a much-reduced Corporate tax rate makes a lot of sense
There are many provisions of the new bill that will take time to digest and review while tax strategies under the “new normal” are developed. As we have a chance to review these be sure to pay attention to our monthly newsletters, social media accounts and podcasts to learn more. Happy Holidays to all!