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The tax reform freight train has been signed into law..... Now that we've viewed the over 500 pages (sigh) of the reform bill, below is a list of highlighted changes from current tax law. You'll also find suggestions for general action steps you may want to take before January 1, 2018. IMMEDIATE ACTION STEP ITEMS: 1) Individual Tax Brackets: Previously, the brackets ranged from 10% to 39.6%. Tax Reform: Adjusts the tax bracket rates and income levels, as well as reducing the top bracket to 37%. Action Step: Click here for comparison tables. Consider deferring income to 2018 if it lowers your income according to the brackets. 2) SALT (State and Local Taxes): Previously, taxpayers could itemize all state and local tax expenses, subject to AMT & itemized deduction phase-out limitations. This most notably includes property taxes on homes, and state income taxes paid. Tax Reform: Deduction capped at $10,000 for all state and local taxes. Action Step: For those who itemize and are not subject to AMT (see line 45 of your 1040 tax return)... look at lines 5 and 6 of your 2016 Schedule A to see if the total exceeds $10,000. If so, and 2017 will be similar for you as 2016, you may want to consider pre-paying your 2nd installment of property taxes in 2017 (generally due February 2018). NOTE: you cannot pre-pay 2018 estimated income taxes in 2017 for tax avoidance purposes. 3) Medical Expenses: Previously, medical expenses were an itemized deduction to the extent they exceeded 10% of adjusted gross income (7.5% for those 65 and older). So if income was $50,000, medical expenses were only eligible as an itemized expense to the extent they exceeded $5,000. Tax Reform: Reduces adjusted gross income threshold to 7.5% for all taxpayers, retroactive to 2017 and applicable in 2018. Old rules revert back in 2019. Action Step: Pay and claim applicable medical expenses during 2017 and 2018 tax years, since expenses will be subject to a lower floor for those two years. 4) Unreimbursed Employee Expenses: Previously, you could deduct expenses incurred for unreimbursed work-related expenses to the extent they exceeded 2% of adjusted gross income. Tax Reform: Eliminates the employee expenses deduction. Action Step: Pay as many applicable employee expenses before January 1, 2018. 5) Moving Expenses: Previously, you could deduct expenses incurred for work-related moves exceeding 50 miles. Tax Reform: Eliminates the moving expense deduction. Action Step: Pay any applicable moving expenses before January 1, 2018. 6) Casualty Losses: Previously, you could itemize loss deductions that exceeded $100 + 10% of adjusted gross income. Tax Reform: Only allows deduction for losses if they occur in a presidentially declared disaster area. Action Step: Be sure to claim applicable casualty losses on 2017 tax return that weren't related to declared disaster areas (i.e. - flood or fire in your home not related to declared disaster like Hurrican Harvey, etc). 7) Business Tax Rates: Previously, the top corporate tax rate was 35%. Tax Reform: Moves the top corporate tax rate to 21%. Action Step: Corporations should defer income receipt from 2017 to 2018. 8) 529 Savings Plans: Previously, 529 plans could only be used to cover costs of college. Tax Reform: Allows families to spend up to $10,000 per year from 529 plans to cover costs of K-12 expenses for private or religious schools. Action Step: Consider using 529 plans now for your kids K-12 schooling, rather than waiting for college. OTHER ITEMS: Mortgage Interest: Previously, homeowners could deduct interest paid on up to $1,000,000 in mortgage debt, plus $100,000 in home equity debt. Tax Reform: Limits deduction on mortgage interest to first $750,000 in debt, and eliminates the deduction for interest on home equity indebtedness. Current mortgages are grandfathered in and not affected by the new law. Action Step: Not much to do here in the way of planning/action steps since this does not affect existing mortgages. Child Tax Credit: Previously, taxpayers received a $1,000 credit per eligible child. Credit began to phase out once income hit $110,000 for married filers and $75,000 for single & head of household filers. Tax Reform: Increases credit from $1,000 per eligible child to $2,000 ($1,400 of which is refundable). Also, increases income phase out to $400,000 for married filers and $200,000 for single & head of household filers. Action Step: Have more kids. Just kidding! This will not provide a larger child tax credit, but will help many more folks qualify for the credit who previously phased out due to income limitations. Estate Taxes: Previously, estate taxes applied after a $5.49 million exemption ($10.98 million for married couples). Tax Reform: Increases exemption to $11 million ($22 million for married couples). Action Step: We wouldn't recommend planning your lifespan around this! Also, law expires at end of 2025 if not extended. Standard Deduction: Previously, the standard deductions were $6,350 for single filers, $12,700 for joint filers, and $9,350 for head of household. Tax Reform: Adjusts standard deduction for single filers to $12,000, joint filers to $24,000 and $18,000 to head of household. Action Step: Contact us if you have specific questions on how this could affect you. Personal Exemptions: Previously, the personal exemption was worth $4,050 per dependent claimed. Tax Reform: Removes the personal exemption. Action Step: Not much to do here in the way of planning/action steps. Alimony: Previously, alimony paid was deductible and alimony received was taxable. Tax Reform: Disallows a deduction for alimony paid out, and no longer requires recipients to claim alimony as income (begins in 2019 for divorces signed after December 31, 2018). Does not apply to arrangements for divorces prior to 2019. Action Step: Not much to do here in the way of planning/action steps. Obamacare Individual Mandate: Previously, most taxpayers face a penalty for not buying health insurance. Tax Reform: Removes the provision requiring most Americans to buy health insurance or face a penalty Takes effect in 2019. Action Step: Not much to do here in the way of planning/action steps, as there's much more to insurance considerations than simply taxes. . This tax reform has brought about sweeping changes. Now more than ever, you need a competent tax preparer who can guide you through these tax law changes. Please know that you’re not alone in trying to decipher the impact on you. We’re here to help guide you the whole way! Contact us any time with questions...we’re glad to assist! Comments are closed.
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