On December 13, 2017, the Conference Committee reached an agreement reconciling GOP Senate and GOP House versions of the tax bill. As of Friday, December 15, 2017 the bill was moving forward.  Below are some key features and possible planning suggestions:

  • Proposed eliminating or reducing itemized deductions in 2018 in exchange for a larger standard deduction which will greatly reduce the number of taxpayers who itemize:
  • Individuals will be able to deduct no more than $10,000 of state income taxes and real estate taxes combined.  If you are not subject to the Alternative Minimum Tax (AMT) and you expect to owe state and local income taxes when you file your 2017 return pay your estimated balance due by December 31, 2017.  Also, prepay your real estate taxes if your county allows by December 31, 2017.
  • Cap on mortgage interest deductions to included interest on mortgages up to $750,000.  It may be beneficial to make January 2018 mortgage payments in December 2017.
  • Miscellaneous itemized deductions may be reduced or eliminated.  If you have been using this deduction it may be beneficial to prepay any expenses in 2017.
  • If you meet the threshold to deduct medical expenses it could make sense to prepay medical expenses in 2017.

Prepaying these deductions may result in negative Alternative Minimum Tax (AMT) implications so please contact us to discuss before acting.

  • Proposed Lower tax rates effective for the 2018 tax year
    • C-corporations: a flat rate of 21percent down from current law of 35 percent
    • Individual: a top rate of 37 percent down from current law of 39.6 percent
    • Qualifying pass-through entities like Sub S corporations and Partnerships (including Sole Proprietors) will have lower effective tax rates
    • Plan of action: Defer receipt of income or bonuses if possible into next year to take advantage of the lower rates.  Pay any business expenses possible by December 31, 2017 for cash basis taxpayers.  Remember paying bills with a credit card is treated the same way as paying with cash or check.
  • Repeal of AMT
    • For C-Corporations the AMT would be eliminated
    • For individuals’ AMT might remain, but the threshold would possibly exclude any individual under $500,000 or family below $1 million from the tax.
  • Other provisions
    • Moving expense deduction will be eliminated
    • Removal of penalties for people without Health Insurance
    • Child tax credit expanded and potentially refundable
    • Raising the Estate tax threshold from 5.5 million to 11 million

Please keep in mind that the tax reform Congress is proposing may or may not become law. Please contact us if you have any questions or concerns before taking any action.