COVID-19 Update: Beaird Harris has shifted a significant number of our team members to work remotely.
We continue to serve and care for our clients, just as we always have, and are available by phone, video or email.
Beaird Harris will be closed on Friday, July 3rd in observance of the Independence Day holiday.
1. Prepay state and local income and property tax in 2017.
(IF you’re not subject to AMT)
Because these deductions are limited in 2018 ($10,000 cap), it’s best to accelerate payment if you can. However, if you expect to pay Alternative Minimum Tax (AMT) in 2017, you will lose the benefit of the deduction for state and local taxes and accelerated payments will not provide a benefit. When it comes to prepaying state and local income taxes keep in mind that you can only deduct amounts related to 2017 tax liabilities. The limitation on prepayment of taxes does not apply to property taxes. You’ll need to check with your tax assessor to confirm that they will accept and apply a prepayment of 2018 property taxes.
2. Consider the timing of other itemized deductions besides state and local taxes.
Under current law you have the option to itemize your deductions (mortgage interest, real estate taxes, charitable donations, etc.) or take the standard deduction – whichever is greater. In 2017 the standard deduction for single filers is $6,350 and $12,700 for married filers. Under the new bill, these amounts would increase to $12,000 and $24,000, respectively. The increase to the standard deduction, and the limitation/elimination of some itemized deductions, will significantly decrease the number of taxpayers who itemize their deductions.
If you think your 2018 itemized deductions will not exceed the new standard deduction, consider paying those items early.
3. Business Owners: Consider placing qualified business property into service in 2017 vs. 2018.
As a business owner, you can fully take advantage of the new 100% expensing of qualified business property (“modified bonus depreciation”) in 2018 through 2022. However, you may realize an even greater benefit for a deduction in 2017, since the tax rates under current law are generally higher than the new tax rates which will apply beginning in 2018.
As a result of tax reform, the tax rates will generally decrease for taxpayers and a 20% deduction will be allowed against “Qualified Business Income.” The 100% expensing of qualified business property provision is one of the few that was made retroactive (applies to property placed into service after September 27, 2017) and applies to both new and used qualified business property.
Other Implications to Note
Highlights of the Tax Reform Bill
Detail of Tax Reform Changes Affecting Individuals
Detail of Tax Reform Changes Affecting Businesses
This year-end tax planning letter is based on the preliminary understanding of the new tax bill. The law is subject to change and likely will via various Technical Correction bills over the next year.
Finally, remember that this letter is intended to serve only as a general guideline. Your personal circumstances will likely require a careful examination. Please don’t hesitate to reach out to us with questions or for additional strategies on reducing your tax bill.
While many of our tax advisors will be enjoying the holidays with their families, we will have team members on hand through the end of the year to assist with any time sensitive questions you may have regarding these changes. Please call our office at 972-503-1040.
The technical information in this newsletter is necessarily brief.
No final conclusion on these topics should be drawn without further review and consultation.
Adapted from “Year-End Tax Tips, in Light of Tax Reform” by Zero Alpha Group Member Firm Plancorp.
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