Proposed New Tax Law affecting Individual Clients
The Senate has passed a new tax plan and now this plan has to be reconciled with the House plan before going to the President and becoming law. Although there are differences between the House and the Senate, we should all be expecting sweeping changes to the tax law for individuals in 2018. With the proposed changes, the proper year-end tax planning for individuals for 2017 may save tax dollars and I would like to inform you of these techniques.
Under both the House Bill and the Senate plan call for a near doubling of the standard deduction for Single, Married Filing Joint and Head of Household statuses. Both the House Bill and the Senate Plan call for the elimination of the State and Local tax deduction, also known as SALT. Both plans call for the elimination of most miscellaneous itemized deductions including, unreimbursed employee business expenses, union dues and assessments, uniforms, work clothes and cleaning, etc.. Both the House and the Senate call for the elimination of mortgage interest deductions for personal residence home equity loans. Both the House and the Senate call for a cap on property tax deductions (probably $10,000).
It is important to look at the items of the tax plan where both the House and the Senate agree and assume that these particular changes will become law for 2018. Some techniques that you can use in 2017 that may save tax dollars are as follows:
Charitable donations: Although charitable donations will remain tax deductible under both plans, many taxpayers that itemize their deduction in 2017 may not in 2018 since the standard deduction will almost double and many deductions that you itemize now will be eliminated. This is especially true in high tax states such as New York and New Jersey. If you do not itemize in 2018, the charitable donations you make in 2018 will not have any positive affect on your tax liability. In these cases, it is advisable to accelerate charitable giving that was earmarked for 2018 and make them by December 31, 2017.
Real Estate Taxes: Property taxes may not be fully deductible in 2018 and also would be lost to an individual who does not itemize in 2018. It is advisable to prepay 2018 property taxes by December 31, 2017.
Mortgage interest: It is advisable to prepay your January 2018 mortgage payment for primary and home equity loans by December 31, 2017 since the new law may limit the primary mortgage interest deduction and eliminate home equity mortgage interest. In addition, these deductions would be lost in 2018 if you do not itemize your deductions.
State and Local Income Taxes: Since state and local income tax deductions would be eliminated in 2018, it is advisable to pay any 2017 State and Local estimated taxes that may be due in January of 2018 by December 31, 2017.
Unreimbursed Employee and miscellaneous deductions: Since House and Senate plan call for the elimination of these deductions in 2018, it is advisable to accelerate the payment of ordinary and necessary unreimbursed employee business expenses to December 31, 2017. Typical expenses involved in this situation are union dues, uniforms and certain work clothing, professional supplies, subscriptions, job search, etc..
I hope this is helpful, and as always, if you have any questions please call the office.