Tax Planning in the Midst of Uncertainty
Overview of Changes Contained in the New Tax Law [pdf]
We always urge clients to consider tax planning an ongoing activity. Given recent significant changes in the law, it is more important than ever. In this Update, we provide a brief overview of some changes recently introduced by legislation, as well as our annual tax guide produced by our trusted third-party partner. After you have had a chance to review this information, please contact your AKM CPA to schedule time for your personal tax planning session; it’s more important than ever.
The New Tax Law
The Tax Cuts and Jobs Act of 2017 (“the Act”) represents the greatest change to federal tax law in over 30 years. The Act includes wide-ranging provisions that take effect in various tax years and last for differing amounts of time, with all expiring by the end of 2025. Below is a snapshot of some key changes. A more detailed summary can be found here. As you read this, keep in mind that the IRS is still drafting the rules that govern how these changes will actually be implemented.
- Reduction in marginal tax rates
- Substantial increase in the standard deduction
- Increase in AMT exemption
- Expansion of tax free 529 education funding plans to include primary and secondary education
- Limitations on a number of popular deductions, including:
- State and local taxes
- Mortgage interest deduction
- Elimination of other deductions:
- Home equity debt interest deduction
- Personal casualty and theft loss deduction
- Miscellaneous itemized deductions
- Moving expense deduction
- Elimination of the Affordable Care Act’s insurance mandate
- Doubling of estate and gift tax exemptions
- Replacement of current range of rates with a flat rate of 21%
- Increase in deductions for expenses and depreciation:
- Doubling of Section 179 expensing limit
- Increase in phaseout threshold for 179 expenses to $2.5M
- Increase in bonus depreciation to 100%
- Expansion of assets eligible for bonus depreciation to include used assets
- Limitations on:
- Net operating loss deductions
- “Excessive” employee compensation
- Deductibility of interest expenses
- Deductions for employee fringe benefits, meals and transportation
- New deductions and credits:
- 20% business income deduction for flow-through entities
- Tax credit for employer-paid family and medical leave (through 2019 only)
Contents of the 2017-2018 Tax Planning Guide
Year-to-date review [Page 2] – An overview of how to minimize 2017 taxes emphasizing the importance of timing. Case study: Avoiding underpayment penalties.
Executive Compensation [Page 6] – Strategies for crafting a tax-efficient total compensation package. Case study: Watch out for falling stock prices after exercising ISOs.
Investing [Page 8] – A summary of tax considerations when buying and selling investments. Case studies: Mutual fund capital gains distributions: a taxable event; Tax-exempt or taxable bonds? It’s a question of yield.
Real Estate [Page 12] – Some advice on using real estate to reduce your tax bill. Case study: Converting a personal residence into a rental property may save taxes
Business ownership [Page 14] – A discussion of retirement savings options, exit planning, sale and acquisition.
Charitable giving [Page 16] – A survey of a wide range of strategies, from cash and stock donations to various trust structures.
Family and education [Page 18] – An overview of how families can save significantly on their tax bills through IRAs for teenagers, education savings plans and strategic gifting. Case study: It’s never too early to save for retirement.
Retirement [Page 20] – A summary of tax issues associated with contributions to and withdrawals from various types of retirement accounts. Case study: Making the most of catch-up contributions.
Estate planning [Page 22] – A summary of the many moving parts that go into tax savvy estate planning. Case study: Why annual exclusion gifts can be a powerful tax-saver.
Tax rates [Page 24] – 2017 individual and corporate income tax rate schedules.