12/24/2017
Hello all,
You can't help but have heard at least something about the new tax bill that was signed into law by our President and Commander in Chief just yesterday. It is the most sweeping change to the tax law in 30 years. I've been holding off sending out anything until it was finalized. I want to give you a brief summary and some tips on things that you can do before December 31 to avoid some of the negative aspects that may impact you in 2018.
Summary of the new law as it pertains to individual income taxes:
The Good:
- Changes to income tax brackets may lower your tax rate
- Doubling of the standard deduction will help you if you have not been itemizing, or if your itemized deductions are only slightly higher than the current standard deduction
- Deductions for charitable contributions, retirement savings, and interest on existing mortgages remain unchanged
- The threshold for deducting medical expenses is reduced from 10% of income to 7.5%
- Estate tax exemption is doubled (no biggie for most of us whose estates will be less than $11.2M)
- Child Tax Credit is increased from $1,000 to $2,000 per child and makes part of it refundable if you don't pay enough taxes to cover the credit. Income eligibility to claim the credit is increased
- 529 Education Savings Plans can be used at private and religious K-12 schools
- A new $500 credit for non-child dependents (parents, etc.)
- Increased exemption for Alternative Minimum Tax applicability
- Alimony received is no longer taxable
- Student loan interest is still deductible
- No changes to capital gains taxation
The Bad:
- Property taxes and state income taxes, previously deductible at 100% if you itemized, are now capped at $10,000. Many of us will lose half or more of what we used to deduct.
- Personal exemptions (currently $4,150 for each person claimed on a return) are eliminated
- Obamacare is repealed, which will affect some people's ability to obtain affordable health insurance
- Interest on new mortgages is allowed for only the first $750,000 of debt, down from $1M. (Existing mortgages are grandfathered and not affected)
- Home equity loan interest is no longer deductible – for new or existing loans – unless the loan is actually used to improve your home
- Most miscellaneous itemized deductions are eliminated. This includes moving expenses, tax preparation, employee business expenses, job hunting expenses, other items that are currently deductible if they exceed 2% of your income.
- Alimony paid is no longer deductible
What can you do now to minimize the impact on your taxes for next year, at least?
1) Pre-pay your 2018 property taxes – allowing prepayment if you do it by December 31, 2017. This allows you to take the full deduction on your 2017 taxes while you still can.
2) If you make estimated income tax payments, pay your January 2018 state tax installment before December 31, 2017. This also allows you a full deduction in 2017 which may be completely or partially lost in 2018.
3) Defer income until 2018 where possible – your income tax rates may be lower then. This includes employer bonuses, commission payments, etc. This allows you to take advantage of potentially lower tax brackets next year
4) Accelerate miscellaneous deductions if you were able to deduct these in the past – many of these are disappearing next year. For instance, renew professional memberships and subscriptions early.
The biggest thing most people can do is 1 and 2 above - pay your property and income tax installments early. If you can't it's no big deal - don't leave yourself strapped for cash just to save some taxes.
Send me a note or call me if you have any questions.
Happy healthy holidays to you and your family. I'll be sending out my annual letter in a week or so.
Best regards,
Tom
TWT CPA LLC
[email protected]
www.twtcpallc.com
61 Village Drive
Montville, NJ 07045
973-769-2877
TWT CPA LLC in Montville, NJ provides first-rate financial management services. Contact me to schedule an appointment.
