Tax Reform Special Alert

With the tax reform ready to be signed into law today, I wanted to share several critical year-end moves that could potentially save you thousands in taxes, if you were to undertake them by December 31. I have spent numerous hours researching the new tax law provisions and listened to several podcasts in the past few weeks, and I must say with much certainty that most of the individual and business tax provisions are very evident. I will continue to review the changes and how they will affect you.

There are a few year-end tax planning strategies that might make sense depending on your circumstances. The main thing to do is to prepay a LOT if you are a cash basis business or at a personal level! Many of the deductions have been limited or will be of lower value given the lower tax rates in the upcoming year. Some of you will no longer be able to itemize your deductions.

·         Prepay 4th quarter California (and/or other states’) income taxes if you are on the quarterly estimated tax payment schedule. The refunded excess of overpaid taxes will be taxed in 2018 at a lower rate.

·         Prepay real estate taxes that would have been due in February-April 2018.

·         Stock up on charitable contributions, whether putting into a donor advised fund or straight to charities.

·         Prepay all miscellaneous 2% deductions because they are gone next year. The typical ones are legal fees (related to estate planning, employment, divorce), investment advisory, tax preparation fees, subscriptions related to investments and job search.

·         Defer large inflows of income until 2018, if possible, when tax rates will go down.

However, if you are subject to Alternative Minimum Tax in 2017, you will realize small or even zero benefit from prepayment of taxes or miscellaneous deductions, unless you have much in investment income. To determine whether you are subject to AMT, a detailed computation of your projected 2017 tax liability might be necessary. Please contact me the sooner the better with questions on that. There aren’t many days left in this year!

The new business-owner deduction is very complicated to understand, and I will be watching it closely for each client to compare C Corp 21% rates to personal rates. It is still unclear with what choice of entity you should continue or get started. However, the good news is that potentially, if you make less than 315K married-filing jointly, you will get a 20% deduction against your net business income from S Corp, LLC, or sole proprietorship. If you make more than that, or are a personal service business, things get tricky, but present potential for some planning around that.

It is almost impossible to mass calculate the effect of these provisions. This is the best calculator I've found yet, but each client will need a unique analysis early 2018.

Anyone with a W-2 is going to need to update their withholding allowances, for better or worse, but we don't know when the IRS will release those regulations. It will be an interesting spring to say the least.

Please email me with ANY questions, brainstorms, ideas, or concerns you have on these topics.

Wishing everyone happy and peaceful holidays!