On December 22, 2017, Public Law no. 115-97 was signed into law. The bill, also known as the Tax Cuts and Jobs Act, amends tax law effective January 1, 2018. The tax law changes include bracket and rate changes, an increased standard deduction, elimination of personal exemptions, limitation of state and local income and property tax deductions, and the repeal of the individual mandate of the Affordable Care Act. Certain individuals will no longer be itemizing in 2018, therefore increasing deductions in 2017 will be beneficial for tax purposes. Due to the tax rate changes, clients who will still itemize in 2018 should consider accelerating deductions into 2017. Based on these changes, we are recommending that our clients consider the following before year end:
- Ensure that all 2017 state and local taxes are paid in by December 31, 2017 and prepay 2018 real estate taxes (if you pay electronically vs. writing a check, you may need to pay in by December 29th 2017).
- Caution – The payment of state and local income and property taxes may not provide a tax benefit if you are subject to AMT (alternative minimum tax).
- Consider accelerating your planned 2018 charitable donations to before December 31, 2017. As tax rates will decrease in 2018, your donations provide a greater tax advantage in 2017 than they would in 2018. Also, your noncash donations to charities such as Goodwill provide a better deduction in 2017 than they will in 2018.
- If you still have the ability to defer any income to 2018 via a retirement plan, the deduction from your income in 2017 is more valuable than it will be in 2018.
- Prepay your January 2018 mortgage payment in 2017 for a larger interest deduction in 2017.
- If you own a business and need to purchase any business assets, consider purchasing §179 business assets before year end. Your §179 tax benefit will be greater in 2017 than in future tax years.
If you have any questions, please give us a call and we would be happy to evaluate your individual situation.