How to Take Advantage of Tax Reform Before Year's End

by: Jude Heath CPA

6 tax savings ideas to consider before year’s end

1. Pay your 2018 property taxes early
If your state and local taxes will be greater than $10,000, pay the excess by December 31st, leaving $10,000 to deduct in 2018.

Jude Heath CPA of the Total Wealth Authority

Jude Heath CPA of the Total Wealth Authority in studio on Winning at Life with Gregory Ricks

2. Make an extra mortgage payment
Make your January mortgage payment in 2017.

3. Give more to charity in 2017
Consider making 2018 charitable contributions by December 31st.

4. Defer or accelerate income
Hold off receiving income until 2018. Families with three or more kids should consider accelerating their income into this year.

5. Pay some expiring personal deduction expenses for 2018 in 2017
Including unreimbursed employee business expenses, including employee home office expenses (Self-employed home office expense rules are unchanged),
Investment advisor, attorney fees for wills or tax planning and personal tax preparation fees.

6. Pay more state income taxes in for 2017
Although you can’t specifically prepay and deduct 2018 state income taxes, one possibility is that you could make an additional 2017 4th quarter payment using a 4th quarter 2017 estimated tax voucher. This would result in an overpayment on the 2017 return that could be credited to 2018.

Synopsis of Important Changes

The standard deduction increases to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers in 2018 (compared to $6,500, $9,550, and $13,000 respectively under current law).

The personal exemption deduction is eliminated.

The mortgage interest deduction is limited to the first $750,000 in principal value.

The home equity loan interest deduction is eliminated.

The state and local tax deduction is limited to a combined $10,000 for income, sales, and property taxes. Taxes paid or accrued in carrying on a trade or business are not limited.

The casualty loss deduction is limited to presidentially declared disasters only.

All miscellaneous itemized deductions subject to the 2% floor are eliminated.
The threshold for the deduction of medical expenses is reduced to 7.5% of adjusted gross income for 2017 and 2018.

The overall itemized deductions limitation for high income taxpayers is repealed.

For any divorce or separation agreement executed after Dec. 31, 2018, alimony and separate payments are not deductible by the payor spouse. Such payments also won’t be includible in income by the payee spouse.

The moving expense deduction is eliminated (except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station).

The child tax credit is expanded from $1,000 to $2,000, while increasing the phaseout from $110,000 in current law to $400,000 married couples. The first $1,400 would be refundable.

The individual insurance mandate penalty is reduced to $0, effective January 1, 2019.

The exemption on the alternative minimum tax is raised from $86,200 to $109,400 for married filers, and increases the phaseout threshold to $1 million.

For individual income tax rates for years 2018 through 2025, see below.

The exemption amount of $5 million for taxable estates is doubled, reducing the number of individuals’ estates that will be subject to the estate tax.

The majority of these individual income tax changes would be temporary, expiring on December 31, 2025.

The corporate income tax rate is permanently lowered to 21 percent.

A 20 percent deduction of qualified business income from certain pass-through businesses is created. Specific service industries, such as health, law, and other professional services are excluded, but with a phase-in once taxable income is above a threshold.

The eligibility to use the cash basis method of accounting for tax purposes is expanded.

Bonus depreciation is expanded to allow full and immediate expensing of eligible depreciable property through 2022, phasing out through 2026, removing the requirement that the property be new.

The following improvements to nonresidential real property are added to the definition of Sec 179 qualifying property, meaning they can be expensed the year they are placed in service, up to the new limit of $1 million, phasing out to $2.5 million: roof, heating, ventilation and air conditioning, fire and security systems

The accounting for inventory for small businesses is simplified; inventory can be expensed as materials and supplies.

The deductibility of interest expense is limited for large companies.

The net operating loss carryback is eliminated, and carryforwards are limited to offset 80 percent of taxable income.

The domestic production activities deduction (section 199) is eliminated and the orphan drug credit and the rehabilitation credit are modified.

The entertainment deduction is limited, disallowing:
1) any activities considered to be entertainment, amusement, or recreation

2) membership dues with respect to any club organized for business, pleasure, recreation, or other social purposes

3) a facility or portion thereof used in connection with any of the above items.
Food and beverages to employees are limited to 50% (previously deductible at 100%).
Currently deferred foreign profits are deemed repatriated at a rate of 15.5 percent for cash and cash-equivalent profits and 8 percent for reinvested foreign earnings.
The corporate alternative minimum tax is eliminated.