How the New Tax Law Could Affect You
On December 22, 2017, major tax changes were approved by Congress and became law. While the changes won’t affect your 2017 taxes, it’s prudent to be proactive and plan for 2018.
Who’s Likely to Be Impacted?
If you fall into one of these three groups, you likely will see a meaningful shift in your 2018 tax situation:
- If you file a Schedule A and claim more than $15,000 in itemized deductions, you might lose some of your deductions. Though many previous itemized deductions have been eliminated or reduced through the new bill, the standard deduction was significantly increased (to $12,000 for individuals and $24,000 for joint filers). Therefore, if your itemized deductions are less than those thresholds, you might not benefit from extra deductions.
- Certain business owners with qualifying business income will be able to take a new 20% tax deduction, yielding more money in their pocket. The new tax code makes significant changes to the way pass-through business income is taxed, including income earned by sole proprietorships, LLCs, partnerships and S Corporations.
- Individuals with annual income greater than $200,000 will benefit from lower tax rates but could lose a significant amount of deductions, which could result in a larger tax bill overall.
What to Do Now: Prepare to Plan
Those who will be directly affected will benefit from strategic tax planning. The best time to do so will be in the months after your 2017 tax filing is complete. After April 15, your advisor can run an analysis of your 2017 filing to project the likelihood of your 2018 impact. Next, get together with your advisors to structure a proactive tax plan that will take advantage of the new tax bill. Set a goal to complete planning between May and September. You don’t want to wait until year’s end—that will be too late.
What’s most important to understand is the complexity of the new bill. Tax professionals and advisors will be unpacking it for months. It’s more than 1,000 pages and contains many very specific inclusions and exclusions. Only a few will apply to everyone. This means your unique situation needs to be reviewed based on your personal specifics.
>> For more tax management strategies read: 7 Key Elements of an Effective Tax Plan: Updated April 2018
Interested in proactive tax planning?