Today the President signed the Tax Cuts and Jobs Act into law – the most sweeping tax reform in three decades. Most of the changes will go into effect next year (2018) so here are some last minute moves you should consider in the last few days of 2017.
- Due to the elimination of many itemized deductions beginning in 2018, if one will no longer itemize deductions in 2018, consider paying as many itemized deductions in 2017 as possible – such as state and local taxes and charitable contributions. (You cannot prepay amounts due for tax years 2018 and later, but you can pay anything due for 2017 that you might otherwise pay in 2018.)
- Pay any property taxes in 2017 – especially places, such as Johnson County, that allow you to split the payment between December and April – consider paying the April 2018 amount before December 31, 2017. Must be a payment – not just a deposit.
- Even if one will continue to itemize deductions, consider paying those items that are slated for elimination (such as state/local/property taxes over the $10,000) in 2017 to avoid a total loss of deduction.
- If you generally make charitable contributions to athletic departments to get preferential athletic seats, make such payments in 2017 since that deduction is eliminated in the future.
- Make your January mortgage and home equity loan payments in 2017 – accelerating the interest deduction into 2017. After 2017, interest on home equity loans will no longer be deductible.
- Consider accelerating deductions and deferring income to take advantage of the deduction at higher current rates applying to 2017. Watch 2017 AMT because if that applies, you may want to accelerate income if it will only be taxed at 28%.
- Reconsider 2017 Roth IRA conversions already made since the ability to “undo” Roth IRA conversions has been eliminated after December 31, 2017.
- Consider maximum retirement plan and IRA contributions for 2017 to take advantage of the deduction at higher current rates.
- Consider contributions to donor-advised funds or private foundations allowing an immediate tax deduction while the payment to the ultimate charity can be spread over a number of years.
- Bunching expenses such as property tax and charitable contributions will become even more important, itemizing deductions and taking the standard deduction in alternating years.
- Consider paying medical bills and other discretionary medical expenses, such as contacts, before year end if you will be able to meet the 7.5% of AGI threshold and will otherwise itemize deductions.
- Pay any deductible employee business expenses before year-end since miscellaneous itemized deductions are virtually eliminated for 2018.
- Hold off on gifts that would be subject to gift tax in 2017 since the exemption will increase to $11,200,000 per person.
- Remember that Kansas enacted retroactive tax legislation in 2017 increasing the tax rates and reinstating the tax on flow-through income.
- Now that the dust has settled, be sure to update your tax and estate planning.
- Defer income and accelerate deductions.
- Pass through entities with lower effective rates in 2018 may want to accelerate deductions and equipment purchases eligible for either immediate expensing or bonus depreciation before year end.
- Bonuses to certain business owners must be paid by December 31, 2017 to get the deduction in 2017. Accrual-basis businesses can generally accrue non-owner bonuses and still deduct them in 2017 as long as they are actually paid by March 15, 2018. Cash-basis businesses generally must pay all bonuses in 2017 to get the deduction in 2017.
- 100% Bonus depreciation for both new and used property is retroactive to items purchased and placed after in service after September 27, 2017, so consider additional purchases in 2017.
- Cash basis entities – Pay any business meals for employees and entertainment expenses (such as Royals tickets) in 2017 rather than waiting until 2018.
- Like kind exchanges of property other than real estate will no longer be allowed on a tax-deferred basis in 2018, so complete such exchanges before year-end.
- Reconsider entity choice – S corp vs C corp – this will require analysis.
Happy holidays from all of us at Meara Welch Browne!