Blog

As you may have heard the Tax Reform Act has passed both the House and the Senate. It will be a little while before we can nail down the exact changes as there is quite a large discrepancy between the two bills. But change will come. All the fine points are expected to be discussed, debated, hammered out and forced into law before the end of the year. This, as usual, allows for very little tax planning. Nor does it allow for much time for consideration and discussion by our legislators.

Here is our advice for this month, December 2017.

  • Pay your property taxes for 2018 now if you are able. The deduction will either be eliminated or reduced to $10,000. Even if it’s lowered to $10,000 your tax benefit will be greater in 2017 because your tax rate is higher
  • Make your Q4 2017 estimated tax payment for California before the end of the year instead of on its due date of January 15, 2018. That deduction is going away permanently, so it would behoove you to pay it now while you can still enjoy the write off.
  • If you’re planning to buy a new car, do so in December rather than waiting. The new vehicle registration fee will not be deductible in 2018.
  • Prepay your tax preparation fee by December 31. That deduction is set to go away as well.

Listed below is a summary of the major changes that will likely affect you:

  • The top rate on the income earned by owners of “flow through” businesses — S corporations and partnerships — is reduced from 39.6% to a shade below 30%.
  • The standard deduction is doubled from $6,350 for a single/ $12,700 if married to $12,000/$24,000.
  • Deductions for personal exemptions are repealed, but the child tax credit is increased from $1,000 to $2,000.
  • Many popular itemized deductions — state and local income taxes, casualty losses, and unreimbursed employee expenses, among others — are eliminated.
  • The estate tax exemption is doubled, to $11 million for a single taxpayer and $22 million for married taxpayers.
  • The alternative minimum tax remains intact, although with a higher exemption amount.
  • The corporate rate is reduced from 35% to 20%.
  • Businesses will be able to immediately expense many asset purchases; after five years of 100% expensing, the rate will phase out at 80%/60%/40%/20% rates over the ensuing four years.
  • If you own rental property, your maximum tax rate on profits from rentals will be 25%. This is great news for wealthy landlords.
  • All of these changes will expire in 2025. Tax law will revert back to what we now know.

My feelings about all this are reflected by Tony Nitti, a respected journalist for Forbes Magazine: “As an American taxpayer, I’m saddened by the way the process played out. A tax bill needs to be carefully considered, available to the public for review and contemplation well in advance of a vote, and—in a perfect world—bipartisan. That way, we can reap the benefit of the most valuable product of tax reform: permanence. Certainty of where the tax law will be in years 3 and 5 and 7 and 10, so that we can plan accordingly. With a Republican-led bill, however, the tax law is only as certain as Republican control; should things flip in 2020, the Code will be revamped again, and it will be taxpayers left struggling to respond to the changes.”

As you will soon learn, this whole business about being able to “file taxes on a postcard,” is incorrect.  Schedule A will be trimmed down possibly eliminating its use for many taxpayers but that’s pretty much it. You must still use all other applicable schedules and line items as well as complete the information regarding health care coverage.

If you have any questions or concerns, please contact either Bonnie or Amanda at  bonnie@taxpertise.com or amanda@taxpertise.com.

Happy Holidays to you and yours.

Back to top
©2017 Taxpertise | Bonnie Lee, E.A. | Ph: 707.935.1755 Fax: 707.938.1891 | 453 2nd Street West, Sonoma, CA 95476