The “Tax Cuts and Jobs Act” at this writing has been approved by both houses of Congress and will be signed by the President by the end of this week.
As much as we all have opinions about this, our job is to now interpret this as best we can at this juncture and provide you with some last minute advice of things you could do by December 31 of 2017.
My first observation, as an accountant, is that this is the most significant amount of structural changes we have seen in the tax code since 1986, forcing us to rethink everything we know in terms of business tax preparation, tax planning etc.. We have been in business since 1988.
The new law goes into effect January 1st of 2018 for the most part. Beginning in 2018, the big game changer for individuals is the expansion of the standard deduction to $12,000 for a single person and $24,000 if you are married and filing jointly. This means that if you do NOT have enough ‘itemized’ deductions that exceed the 12,000/24,000 mark such as mortgage interest, real estate taxes, state income taxes, charity and medical expenses, you will take the ‘standard’ deduction.
This also means in the future, most of us (including myself who owns a house) will no longer have a need or desire to keep track of their mortgage interest, real estate taxes, charity, or medical expenses for 2018 on.
The new law also sets a maximum amount of $10,000 per return of state income taxes and real estate taxes that could be itemized.
This does, however, provide a planning opportunity for 2017 to pay real estate taxes or state income taxes (such as the New Hampshire Interest / Dividends Tax or Massachusetts income tax) THIS year. For real estate taxes to be deductible, it must be ‘billed’ by your town and paid to the town, not just to your mortgage company. When in doubt, pay the town today, and get the money back from your mortgage company tomorrow.
With respect to any STATE (not FEDERAL) income taxes, we recommend that you make a ‘generous’ estimated tax payment in 2017, which would be deductible in 2017. In the event you were to overpay your tax, the overage would be income in 2018, but meanwhile you permanently saved taxes on the extra amount you paid in 2017.
Passthru income. If you have a partnership, an S corporation, or a sole proprietorship, we know that this will be taxed at a lower rate, with some sort of ‘deduction’ of 20%, but we still lack a lot of details on this. Tax planning can also be complicated in this area because of the interaction of the New Hampshire Business Profits tax on passthru income.
Given that we know that the rates on this type of income in 2018 should be lower than 2017, we are recommending that partnerships, S Corporations, and sole proprietorships attempt to PUSH income from 2017 into 2018 and to incur expenses in 2017 that you might be putting off until 2018. This advice does NOT apply to our C Corporation clients.
As we get more information on this tax act, we will keep you apprised on any issues that may affect you.
Thank you for your time, and we all wish you a very pleasant and Merry Christmas.
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Copyright 2017 by Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, a PASBA member accountant, located in Londonderry, New Hampshire.
