The much-written about new tax bill has been signed into law, but that doesn't mean the taxpayer needs to suddenly plan moving out of the country.
First, the new tax law changes apply to 2018. This means that taxpayers have a great opportunity in the last few days of 2017 to make some final minute changes with significant tax impact. These include:
- If you live in a high state tax location like California, Connecticut, Massachusetts, New Jersey, New York, Virginia and Washington D.C., the tax changes are going to hurt a bit. This is because these states have the highest state taxes that will be capped or become useless as deductions. Try to prepay any April property taxes now if possible. Especially for high value properties, the new tax laws will be painful, capping all property and sales tax deductions in 2018 to no more than $10,000. Not all counties will take this prepayment, not expecting a sudden rush of payments, but where possible it can lower your 2017 taxes for taxes you won't be able to deduct in 2018.
- Those considering the purchase of a second home may want to reconsider. The limitation of property tax deductibility applies to the aggregate total taxes paid. As a result, while an individual home might be well within the deductibility range, two homes could well top the limit. It may be a better move to reinvest in and improve the current home instead.
- Workplace expenses have long been deductible but this benefit is going away in 2018. So if there's anything to purchase for work due to tax deductibility, 2017 is the year to buy it in.
- Start planning what needs to be changed in your personal finances to rely less on deductions in 2018. This is because the standard deduction will literally double in 2018, as well as the tax credit for children. In many cases, taxpayers may find the standard deduction and generic tax credits are the new normal for the next few years.
- Medical deductions, educational tax benefits and the mortgage deduction are still in place. However, the mortgage debt deduction eligibility has dropped from loans of $1 million to $750,000. Higher value income property owners will feel the pinch as their cost of living goes up a bit in 2018.
- Plan ahead for professional help. Given the significant amount of people affected by the new tax changes there will be a huge demand for professional advice and guidance, both for 2017 filings and 2018. And many CPAs and preparers will need time to catch up with the changes. Don't wait until the last days to hire a tax preparer or advisor.
- And, for those who thought they might have made a mistake changing their traditional IRA to a Roth IRS with a conversion, December 31 is the last day to recharacterize an IRA back. With the beginning of 2018, the ability to go back to a traditional IRA goes away and the Roth decision becomes final.
Given the above major changes, folks are encouraged to reduce their tax liabilities as much as possible in 2017 with the outgoing benefits. These changes as well as a bit of realignment will allow people to take full advantage of the new tax law and its simplifying of the income tax filing process. And it doesn't hurt to bring in some professional help when needed. Complex tax situations will benefit greatly from tax legal expertise and understanding the full ramifications of changes for 2018 before they fully apply. We are fully aware of the changes that will take place on the tax reform. Taxpayers will not see the ramifications until Spring of 2019 for all of the tax breaks available. In this series we will be breaking down what deductions will be eliminated for an individual in 2018. Don't miss your opportunity to take advantage of the 2017 tax deductions, take action today and call Travis W. Watkins Tax Resolution and Accounting Firm at 800-721-7054.
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