It’s Official, Tax Reform is here! This is the first significant reform of the U.S. tax code since 1986. BUT WAIT! It’s easy to forget that we still have 2017 taxes to file, which are governed by the old rules. That’s tax preparation. While we are working on 2017 taxes, that’s an opportunity to have a discussion on how the new rules are going to affect you in 2018. That’s Pro-Active Tax Planning. But first comply for 2017.
The IRS announced that it will start accepting 2017 tax returns on January 29, 2018, they strongly encourage taxpayers to file their tax returns electronically for faster refunds. If you’re expecting a refund partly or wholly because of the Earned Income Tax Credit or the Additional Child Tax Credit, those checks may not go out before mid-February. File early and beat identity thieves to it.
Let’s take one day at a time and look at Which laws apply for 2017:
The 2017 Disaster Tax Relief Bill. This Act provides:
- Temporary tax relief for residents affected by Hurricanes Harvey, Irma, and Maria.
- Businesses that qualify for relief may claim a new “employee retention tax credit” of up to $2,400 for qualified wages paid to eligible employees.
- Eased restrictions for individuals for claiming personal casualty losses by waiving the 10% of adjusted gross income and permitting the casualty deductions by non-itemizers.
- Tax-favored withdrawals from retirement plans. The 10% early withdrawal penalty is eliminated permitting this income to be reported ratable over 3 years and allowing re-contributions in the form of rollovers within 3 years of distributions.
- The option of using current or prior year’s income for purposes of claiming the earned income and child tax credits.
- Charitable Deductions Limitations are suspended.
Medical deductions: the floor is lowered to 7.5% of adjusted gross income for all individuals. If you recall in 2016 only taxpayers who were over 65 years old could take the 7.5% deduction and everyone else was 10% of their adjusted gross income.
Health Care Reporting: The IRS will not accept individual e-filed tax returns until the taxpayer indicates whether they had coverage, had exemption or will make a shared responsibility payment. Paper filed returns that do not address health coverage requirements maybe suspended and refunds may be delayed.
Be aware of Provisions that expired as of December 31, 2016.
Now what to plan for in 2018?
2018 Changes: Highlights of the Tax Cuts & Jobs Act
Remember: None of the following will affect your 2017 tax return, even though there was a push to pass a tax overhaul by Christmas of 2017. The new laws will first be applied to 2018 tax returns. But, you have to do something during this year to be in good shape for tax season next year.
Some Top Changes for Individuals:
- Individual tax rates are lowered.
- Standard deduction is increased.
- Personal exemptions are eliminated.
- Child tax credit is increased.
- Alternative minimum tax (AMT) is increased.
- Estate and gift tax exemption is doubled.
- The state and local tax deduction is capped to $10,000.
- Moving expenses are eliminated (with an exception for certain military).
- Employee business expenses are eliminated.
- Mortgage interest beyond interest on $750,000 of acquisition debt, if you purchase a new home is eliminated.
- Mortgage interest paid on equity debt is no longer deductible for any taxpayer.
Some Top Changes for Businesses:
- Corporate Tax rate is lowered to 21%.
- There will be a 20% deduction from net business income for pass through entities (sole proprietors, LLCs, partnerships, S corporations), and rental activities.
- Corporate alternative minimum tax (AMT) is eliminated.
There’s more, talk to your Tax Professional to see how you will be affected by the new laws. Tax Planning is the Key. Failure to Plan is Planning to Fail.