Congress has enacted the biggest tax reform law in thirty years, one that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax you will pay. Since most of the changes will go into effect next year, there’s still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way. Here’s a quick rundown of last-minute moves you should think about making.
Pay 2017 State Income Taxes
The new legislation will limit the deduction for state income, sales, and real property taxes to a total of $10,000 per year.
Consider paying your 2017 state income tax liability before year-end (i.e., your fourth quarter estimated tax and the amount you expect to owe with your state income tax return in April).
Caution: If you typically pay alternative minimum tax, state income taxes are not deductible for alternative minimum tax purposes, so the strategy would not be beneficial if you are subject to AMT for 2017. Please call us and we can help you determine if you are in AMT.
Pay 2018 Real Property Taxes
Consider prepaying part or all of your 2018 real property taxes to the extent you do not expect to get a federal benefit for paying the taxes in 2018.
Caution: If you typically pay alternative minimum tax, real property taxes are not deductible for AMT purposes, so the strategy would not be beneficial if you are subject to AMT for 2017. Please call us and we can help you determine if you are in AMT.
Accelerate Charitable Contributions
The new legislation retains the charitable contribution deduction and doubles the standard deduction to roughly $12,000 per year ($24,000 for married couples filing a joint return). The higher standard deduction is expected to significantly reduce the number of taxpayers that itemize their deductions and thereby reduce the number of taxpayers that will be able to deduct their gifts.
If you expect to claim the standard deduction or be in a lower tax bracket in 2018, then you may want to consider making charitable donations before the end of 2017.
Purchase Business Capital Assets
The new legislation generally allows businesses to immediately expense the cost of new equipment and other capital assets acquired after September 27, 2017. Consider acquiring fixed assets before year- end as a way to accelerate deductions.
Review Your Business Expense Reimbursements
The new legislation suspends the deduction for employee business expenses paid after 2017. Consider paying additional employee business expenses in 2017 that you would otherwise pay in 2018.
Also, now would be a good time to talk to your employer about changing your compensation arrangement—for example, your employer reimbursing you for the types of employee business expenses that you have been paying yourself. In most cases, such reimbursements would not be subject to tax.
Please keep in mind that we have described only some of the year-end moves that should be considered in light of the new tax law. If you would like more details about any aspect of how the new law may affect you, contact Alerding CPA Group at 317-569-4181 or www.alerdingcpagroup.com.