Tax Cuts and Job Acts

As all of you have heard by now, we have the largest tax law changes since 1986.

Although there are many changes taking effect in 2018, there are some actions you can take in the next few days to possible save you some taxes in the future.

The new law limits the “Taxes You Paid” deduction claimed on Schedule A to a maximum of $10,000 beginning in 2018. This includes real estate taxes, state and local income taxes or the sales tax deduction for those without state income taxes and the DMV privilege tax.

If you pay more than $10,000 a year there are steps you can take immediately to save a few dollars next year.

Pay your January and March real estate taxes before December 31, 2017. You can only deduct taxes assessed so you cannot prepay the taxes past the June 30, 2018 assessment that has already occurred.

Unfortunately, if your taxes are paid through your mortgage this option is not available to you.

The other action you can take if applicable is to pay your January 2018 STATE estimated income tax payment before December 31, 2017.

However, don’t bother over-inflating your last quarter state payment to try to sneak some of the 2018 state taxes into 2017 as the new law is going to disallow as a deduction the overpayment of 2017 state taxes.

Neither of these actions will help if you know you are already paying the Alternative Minimum Tax (“AMT”). This is a rule that requires us to recalculate your taxes with certain adjustments (most notably is the disallowance of taxes and miscellaneous deductions) at a flat 26% and then you pay whichever is higher, the AMT or the regular tax.

If you choose to take action on either of these suggestions be sure to mail your payments certified, return receipt, to prove that you did pay it by December 31, 2017.

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There are many other changes that will affect every taxpayer. Some of interest to all of us are:

The elimination of the personal exemptions. This is the $4,050 per exemption (you, your spouse and your dependents) you are allowed to deduct from your income. Completely gone in 2018.

The standard deduction (the amount allowed if you don’t have itemized deductions above the standard deduction) is doubled to $24,000 for married couples filing joint returns, $18,000 for head of household filers and $12,000 for individuals.

The doubling of the standard deduction was supposed to simplify tax preparation for millions of taxpayers and take the place of the elimination of the personal exemptions but if you have four or more exemptions your tax might go up.

There are still seven tax brackets but they have been tweaked and because of this your tax may be higher or lower. The highest tax bracket was lowered from 39.6% to 37%.  New withholding tables are being prepared by the IRS and are expected to be reflected in your paychecks some time in February.

Home equity loan interest will no longer be deductible beginning in 2018.

Miscellaneous itemized deductions are eliminated. This means union dues, the tax preparation fees you pay to us and investment advisory fees will no longer be deductible.

The new law increase increases the Child Tax Credit from $1,000 to $2,000 and $1,400 of that amount would be refundable if you don’t have income taxes of $2,000 or more. The other favorable change to this credit was the increase in the phase-out to $400,000 so this credit will be available to more taxpayers in 2018.

Alimony, both the inclusion in income if you receive alimony and the deduction of you pay alimony will no longer be income / deduction in 2018.

The individual mandate of the Affordable Care Act is repealed under the new law beginning after 2018. This means the penalty for NOT having insurance will no longer be assessed after 2018 but that it will be assessed for 2017 and 2018 so you still need insurance or will have the penalty assessed.

Most of these provisions expire after 2025 provided Congress does not make changes before then.

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These changes along with changes made to the business tax laws will be wide reaching and some will see their taxes go down but some will actually see their taxes go up.

Please give us a call to discuss your individual situation and we look forward to helping you through these changes in the months to come.