11.10.2017 | Client Alert
[2017-18 Tax Planning Guide Updates as Laws Change ]
With a Trump White House and a Republican majority in Congress, there is a strong possibility of dramatic changes in tax law. For businesses, corporate tax reform could affect C corporations as well as other entities, and will likely result in lower rates with fewer deductions and credits. Individuals could also see changes to their tax rates, along with tax breaks and the elimination of certain taxes.
While new tax legislation is likely to be signed later this year, many provisions may not go into effect until 2018 or later. Amid this uncertainty, there could be major incentives to defer income to 2018 and accelerate deductions into 2017. In your 2017 tax planning, it is important to follow current tax law with an eye on what could happen in the future and be ready to act quickly if changes should warrant. The Berdon 2017-18 Tax Planning Guide provides an overview of some key tax provisions you need to be aware of and offers a variety of strategies for minimizing your taxes, given the current tax environment.
This easy-to-use reference tool is available in electronic form — which updates as tax laws change — and in hardcopy. Segmented into common areas of interest such as Income & Deductions, Family & Education, Business, Retirement, and Estate Planning, the Planner provides insights on tax traps and approaches that you may want to explore further. To clarify seemingly complex concepts, the Planner presents real world examples through case studies that help to ensure greater understanding.
Some of the areas covered in this year’s guide include:
Home Equity Debt Interest Deduction. Interest on home equity debt used for any purpose (limit of $100,000) may be deductible. Warning: If the debt isn’t used for home improvement, the interest isn’t deductible for AMT purposes.
Home Office Deduction. If you use a home office for your employer’s benefit and it’s the only use of the space, you generally can deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, and the depreciation allocable to the space.
Donating Appreciated Stock. Appreciated publicly traded stock you’ve held more than one year can make one of the best charitable gifts. You can deduct the current fair market value and avoid the capital gains tax you’d pay if you sold the property. Warning: Donations of such property are subject to tighter deduction limits. Excess contributions can be carried forward for up to five years.
Health Savings Accounts. If you are covered by a qualified high-deductible health plan, you can contribute pretax income to an employer-sponsored Health Savings Account or make deductible contributions to an HSA you set up yourself.
IRAs for Teens. These can be perfect for teenagers because they likely will have many years to let their accounts grow tax-deferred or tax-free. The 2017 contribution limit is the lesser of $5,500 or 100% of earned income. A teen’s traditional IRA contributions typically are deductible, but distributions will be taxed. Roth IRA contributions aren’t deductible, but qualified distributions will be tax-free.
Student Loan Interest Deduction. If you’re paying off student loans, you may be able to deduct the interest. The limit is $2,500 per tax return. Warning: Income-based phaseouts apply to these breaks.
Swap Your Bonds. With a bond swap, you sell a bond, take a loss, and immediately buy another bond of similar quality and duration from a different issuer. Generally the wash sale rule does not apply because bonds are not considered substantially identical. In this way, you achieve a tax loss with virtually no change in economic position.
Accelerating Deductible Expenses into the Current Year. Cash-basis taxpayers may pay business expenses by December 31, 2017, so they can be deducted this year rather than next year. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.
50% Bonus Depreciation. This additional first-year depreciation for qualified assets expired has been extended through 2019. However, it will drop to 40% for 2018 and 30% for 2019. Qualified assets include new tangible property with a recovery period of 20 years or less (such as office furniture and equipment), off-the-shelf computer software, water utility property, and qualified improvement property.
Research Credit. Businesses with $50 million or less in gross receipts may be able to claim the credit against AMT liability. Certain start-ups (generally those with less than $5 million in gross receipts) that haven’t yet incurred any income tax liability can use the credit against their payroll tax.
Consider the 2017-18 Tax Planning Guide as your resource for ideas and tax savings opportunities. When you discover a point that you want to explore further, contact your Berdon advisor to see if it may fit into your personal circumstances.
Follow the links below to download or request a hardcopy of the tax planner.