How Tax Reform under the Tax Cuts and Jobs Act Impacts You by Edward N. Cooper, CPA
Posted on December 22, 2017
On Dec. 20, 2017, Congress passed the Tax Cuts and Jobs Act, which, upon the president’s signature, will become the most comprehensive legislation reforming the U.S. tax code in more than three decades. The new law, which concludes several weeks of negotiations between Congressional Republicans, goes into effect on Jan. 1, 2018, and makes permanent many provisions affecting businesses while setting a Dec. 31, 2025, expiration date for many of the tax cuts affecting individual taxpayers. While individuals may feel some effects of the reform package in 2018, such as less taxes taken from their paychecks, they will not reflect the full impact of the legislative changes until they file their tax returns in 2019.
While there is no lack of news coverage debating the prospective “winners” and “losers” of the reform package, individuals and business owners should speak with their tax advisors to understand not only how the law may affect them but to also plan for maintaining tax efficiency and compliance under the new regime.
Based on the new laws, taxpayers have less than two weeks remaining in the current year to implement a handful of tax-planning strategies that could serve them well on their 2017 returns. Some action steps to consider taking before Jan. 1, 2018, include:
- Accelerating deductions in 2017 and deferring income into 2018 when some deductions will be limited or eliminated, and tax rates will be lower;
- Paying off any outstanding balance of 2017 state and local income, property and sales tax (SALT) before the law goes into effect limiting these deductions to $10,000 in 2018;
- Deferring taxable gifts until 2018 when the gift tax exemption will double;
- Prepaying in 2017 certain itemized deductions for individuals, such as investment expenses and tax preparation fees, which will not be deductible next year;
- Prepaying business expenses that will no longer be deductible in 2017, such as complimentary snacks for employees;
- Recognizing business losses in 2017 before they become limited in 2018;
- Expediting the sale of pending business processes or patents before 2018 when sales proceeds will be treated as ordinary income rather than capital gains;
- Waiting to buy a business vehicle until 2018 when depreciation on luxury autos goes up substantially;
- Taking advantage of full expensing by buying and placing tangible assets in service by Dec. 31, 2017, to benefit from the higher entity and pass-through tax rates this year (the provision applies for assets acquired after Sept. 27, 2017).
These sweeping changes to the tax laws provide opportunities for all taxpayers to reconsider their business structures, tax accounting methods and reporting positions in order maximize the opportunities afforded to them beginning in 2018 under the new act. For example, one of the more talked about strategies is the potential for certain pass-through businesses to convert to C Corporation status in order to take advantage of the lower corporate rates that go into effect and become permanent beginning in 2018. These decisions require careful analysis, and possibly further clarification of the new law, in order to fully maximize opportunity and avoid pitfalls.
The tax advisors with Berkowitz Pollack Brant will be reaching out to clients to evaluate their existing business structures, project out future tax liabilities under alternative scenarios and recommend potential changes to their business structures, reporting positions and operational policies and procedures.
Following are the key provisions contained in the Tax Cuts and Jobs Act. If you have any questions, please contact your advisor.
About the Author: Edward N. Cooper, CPA, is director-in-charge of Tax Services with Berkowitz Pollack Brant, where he provides business- and tax-consulting services to real estate entities, multi-national companies, investment funds and high-net-worth individuals. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at email@example.com.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Raymond James is not affiliated with and does not endorse the services of Edward N. Cooper, CPA, or Berkowitz Pollack Brant Advisors and Accountants. All opinions are as of this date and subject to change without notice. Please note, changes in tax laws may occur at any time and could have a substantial impact on each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as financial advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.