Tax Reform – Moves to Make Before December 31st

The final bill titled Tax Cuts and Jobs Acts (TCJA) is expected to be signed by the President before the Holiday recess. Fortunately, most of the substantial changes apply to years beginning in 2018. However, consider the following before the end of 2017:

  • State and local tax deduction. Deductions – state, local, and real estate taxes will be capped at a combined total of $10,000 (married filing jointly) and $5,000 (single or married filing separately). Consider paying state estimated taxes or additional withholding prior to December 31st. Make sure property taxes are paid. Lawmakers are wise to anyone attempting to pre-pay 2018 with any 2017 over payment deducted from the $10,000 2018 limit.

If you are subject to alternative minimum tax (AMT), consider making a donation to a qualifying Scholarship Granting Organization. The donation is an income tax credit for Alabama taxpayers (like paying an estimate or withholding) and a cash donation for federal tax purposes. This a way to effectively pay additional state tax while saving AMT.

  • Check Deductions. For 2017, the standard deduction for married filing jointly is $12,700 (single $6,350). For 2018, these amounts increase to $24,000 and $12,000 respectively. If you won’t have enough itemized deductions for 2018, accelerate the deduction into 2017. Contributions, taxes (mentioned above) are good examples.
  • Mortgage Interest. For new home purchases after December 15, 2017 mortgage interest will only be deductible on the first $750,000 of mortgage debt. This cap also applies to second homes. The interest deduction for home equity debt is eliminated. If you have substantial home equity debt begin looking at refinance options.
  • Miscellaneous Itemized Deductions. Eliminated going forward. Examples are investment fees, tax prep fees and unreimbursed business expenses. If you’re one of the rare individuals who gets a deduction, check and possibly prepay or pay any outstanding invoice.
  • Capital Gains. No significant change except the tax brackets will be adjusted, but this is one element of your income where you have some measure of control. Review income and portfolio.
  • Deductions for Athletic Seating. Currently, individuals may deduct up to 80% of the amounts paid for the right to purchase tickets. This deduction is eliminated beginning in 2018. Some universities may allow you to prepay 2018 obligation in 2017.

Please contact our office if you have specific questions.