As everyone is aware by now, President Trump signed the tax reform package into law last Friday. While the tax bill contains numerous provisions, we wanted to pass along only a few key items to consider for 2017 and 2018 that may affect some or all of our clients. And you only have a few days of 2017 remaining to take advantage of a few key strategies to wrap up this tax year. Here we go!
• In 2018, the estate tax exemption is jumping from $5.6 million to $11.2 million per person. That is a significant hike and can be transferred to your spouse upon death for a collective estate tax exemption of $22.4 million. Get out there and buy those lottery tickets! The annual gift exclusion will be $15,000 per person per recipient in 2018.
• The standard exemption is almost doubling in 2018. For single filers it will be $12,000 (from $6,350) and for married couples filing jointly it has increased to $24,000 (from $12,700). This increased standard deduction will definitely benefit those of you are that are unable to itemize, but even those of you that used to itemize may find that the new standard deduction is higher than your itemized deductions. If you think you will be using the standard deduction in 2018, you likely will want to accelerate your charitable contributions into 2017 to take advantage of that deduction.
• In 2018, Schedule “A” miscellaneous itemized deductions – typically unreimbursed business expenses for W-2 folks, investment management fees, and tax return preparation expenses, including distributions – are not allowable. Consider pre-paying those business expenses and fees now if you typically receive a deduction for them. Thanks!
• In 2018, Schedule “A” state and local income tax and property tax deductions are limited to $10,000. Therefore, we would encourage all of you to be sure to pay your 4th quarter state estimated tax payments and 2017 property taxes BEFORE the end of 2017. This will at least allow you the benefit of potentially taking advantage of a deduction for these items during 2017. If you still owe Fulton County or City of Atlanta since those property tax bills came out so late this year, pay them now rather than in January. If you escrow those payments, call your mortgage company and request that they be paid now.
• Mortgage interest deductions are limited to $750,000 of principal residence and second home debt. This debt limit was previously $1,000,000 with a home equity line kicker of $100,000. There is no longer a home equity line kicker. Therefore, if your debt is greater than $750,000, you might consider accelerating a mortgage payment or two into 2017 to take advantage of that interest deduction.
• Several of the seven tax brackets have been lowered for 2018. In that regard, we would recommend deferring business income for the next few days if possible. There is also a very complicated pass-through entity business income deduction that may be beneficial for some of you with flow-through entity income.
• The electric car credit expires at the end of 2017. If you are considering a purchase, you have 4 days to complete the sale!
• 529 accounts can now be used to save for elementary, secondary and higher education. Consider making contributions and having family members make contributions. The amounts that you can withdraw for lower level education are limited, so please discuss with us before doing so. Fund your 529’s now!
• There will be no more exemption allowance in 2018. Some of you had this phased out already and are used to not having this exemption allowance, but those of you with children that did not have this phased out will likely see an increased child tax credit. It will double from $1,000 to $2,000 per child under 17 years of age. And it will be available to more filers as the income threshold to receive the credit has increased for joint filers who make up to $400,000.
• Likely a lot less of you will experience the AMT in 2018 when the exemption amounts and the phaseout thresholds have been increased.
• Accelerated bonus expensing of qualified business property purchases has been expanded to 100% of property placed in service through 2022 on new or used property.
• New C Corporation tax rate is a flat rate of 21% in 2018 and no AMT.
The above information constitutes a very limited summary of some of the key provisions in the new tax reform bill along with our recommendations for possible key items to make sure you do over the next few days given the changes. Please contact us directly for questions if you feel you have a specific situation that has not been addressed above. We look forward to working with you during 2018 and wish you all a very happy new year!
Best Regards,
Danielle Van Lear