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How You Are Impacted By Tax Reform

On December 20, 2017, Congress passed The Tax Cuts and Jobs Act; the first significant item of sweeping tax reform in over 30 years. The changes may greatly affect you, the federal income tax for your business, as well as your estate planning. This article is intended to provide you with an overview of the tax law changes, and to assure you that we will keep you informed as we continue to learn more as additional details are released from Congress and the Internal Revenue Service (IRS).
 

MAJOR ELEMENTS OF TAX REFORM FOR INDIVIDUALS
Final legislation contains the following elements (beginning in 2018 unless stated otherwise). Changing the method by which most individuals compute their taxes, including:

    • Increases to the standard deduction for all filing statuses
    • Repeal of personal exemption deductions
    • Increase to the child tax credit
    • Alimony is no longer deductible by payer, nor includible as income by recipient
    • Capping the deduction for mortgage interest to interest paid on principal amounts of up to $750,000 for loans initiated after the bills passing
    • Limiting the state and local tax (SALT) deduction to $10,000
    • Repeal of the individual mandate in the Affordable Care Act after 2018
    • Reduction of the number of income tax rates and brackets
    • Reduction of the tax rates on business income earned through pass-through entities and sole proprietorships
    • Modifications to the exclusion of gain from the sale of personal residence
    • Restrictions on the use of net operating losses
    • Modifications to the individual alternative minimum taxes (AMT) and exemption
    • Increase to the estate and gift tax lifetime exemption to roughly $11M in 2018

POTENTIAL OPPORTUNITIES FOR TAX SAVINGS IN 2017
Depending on your situation, it may be beneficial for you to:

    • Pay all state income taxes related to 2017 by December 31, 2017. This includes any tax amounts you may normally pay as a fourth quarter estimate or that you would pay with the filing of your return in April. (May not be applicable to taxpayers subject to AMT)
    • Pay the second installment of your property taxes before December 31, 2017 (May not be applicable to taxpayers subject to AMT)
    • Accelerate any charitable giving you planned to do in 2018 into 2017. Depending on your particular situation you may not claim itemized deductions beginning in 2018, which means you will not receive a deduction for any charitable gifts

MAJOR ELEMENTS OF TAX REFORM FOR BUSINESSES
Final legislation contains the following elements (beginning in 2018 unless stated otherwise):

    • Corporate tax rates decreasing from 35% to 21%
    • 20% deduction for income earned by all qualified businesses organized as S-corporations, partnerships, LLCs and sole proprietorships. (Subject to limitations based on the type of business and the amount of W-2 wages within the business)
    • Bonus depreciation (new and used equipment) increasing to 100% for assets placed in service from 9/28/2017 through 1/1/2024
    • Section 179 expensing limits (new and used equipment) increasing to $1M
    • Deduction for interest expense limited to 30% of a business’ adjusted taxable income
    • Businesses with average gross receipts less than $25M will be eligible to use the cash method and are not subject to §263A
    • Like-Kind exchanges allowing deferral of a gain or loss would be limited to real property only
    • Repeal of the Domestic Production Activities Deduction (DPAD)
    • Repeal of the corporate alternative minimum tax (AMT)
    • Restricting the use of Net Operating Losses (NOL)
    • Changes to tax deferral of current and prior foreign earnings

OPPORTUNITIES FOR TAX SAVINGS IN 2018

    • 100% expensing of business assets has been enacted, including property placed in service after 9/28/17. (Taxpayers may elect out of bonus depreciation)
    • Corporations with NOL may want to try to utilize the losses in 2017, taking advantage of when higher rates apply

ASSESSING THE LIKELY EFFECTS ON PARTICULAR TAXPAYERS AND INDUSTRIES
There continues to be items that need clarification by the IRS, but we have begun working to develop strategies to maximize tax efficiency under the new rules. Accordingly, you should not rely upon this article to provide any certainty about the new law’s effects on any particular taxpayer, industry or sector of the economy. Each tax situation is different and the new law includes nuances, which may mean that certain items will not necessarily apply to your unique situation.

Please do not hesitate to contact us. We will be pleased to discuss the legislation’s impact on you or your business and to offer more specific tax planning recommendations.