Congress appears poised to enact a major tax reform law that could potentially make fundamental changes in the way you and your family calculate your federal income tax bill and the amount of federal tax you will pay. Keep in mind, however, that while most experts expect a major tax law to be enacted this year, it is by no means a sure bet. So keep a close eye on the news and don't swing into action until the ink is dry on the President's signature of the tax reform bill.
Beginning next year, the bill would repeal or reduce many popular tax deductions in exchange for a larger standard deduction. Here's what you can consider doing before year end to maximize your tax benefits:
For taxpayers that itemize:
- Pay the last installment of estimated state and local taxes for 2017 by December 31 rather than on the 2018 due date and prepay real estate taxes on your home. They are proposing limiting the taxes that can be included in itemized deductions to $10,000.
- Because most other itemized deductions would be eliminated in exchange for a larger standard deduction (e.g., $24,000 for joint filers), charitable contributions after 2017 may not yield a tax benefit for many. If you think you will fall in this category, consider accelerating some charitable giving into 2017.
Timing of business income and deductions:
Due to a general reduction in tax rates and new reduced tax rates on business income in the tax reform bill, it will often be advisable (more often than most years) to defer income and accelerate expenses. So if you have purchases you need to make in the near future, accelerating those expenses into 2017 will likely result in greater tax savings than incurring the same expense in 2018. Similarly, income may be deferred by delaying billings (cash-basis taxpayers) or delaying deliveries (accrual-basis taxpayers).
We have included the proposed tax rates for single and married taxpayers below. If you would like more details about any aspect of how the proposed legislation may affect you, please do not hesitate to contact us.
FOR MARRIED INDIVIDUALS FILING JOINT RETURNSAND SURVIVING SPOUSES:
If taxable income is: The tax is:-------------------- -----------
Not over $19,050 10% of taxable income
Over $19,050 but not $1,905 plus 12% of theover $77,400 excess over $19,050
Over $77,400 but not $8,907 plus 22% of theover $165,000 excess over $77,400
Over $165,000 but not $28,179 plus 24% of theover $315,000 excess over $165,000
Over $315,000 but not $64,179 plus 32% of theover $400,000 excess over $315,000
Over $400,000 but not $91,379 plus 35% of theover $600,000 excess over $400,000
Over $600,000 $161,379 plus 37% of theexcess over $600,000
FOR SINGLE INDIVIDUALS (OTHER THAN HEADS OF HOUSEHOLDS ANDSURVIVING SPOUSES):
If taxable income is: The tax is:-------------------- ----------
Not over $9,525 10% of taxable income
Over $9,525 but not $952.50 plus 12% of theover $38,700 excess over $9,525
Over $38,700 but not $4,453.50 plus 22% of theover $82,500 excess over $38,700
Over $82,500 but not $14,089.50 plus 24% of theover $157,500 excess over $82,500
Over $157,500 but not $32,089.50 plus 32% of theover $200,000 excess over $157,000
Over $200,000 but not $45,689.50 plus 35% of theover $500,000 excess over $200,000
Over $500,000 $150,689.50 plus 37% ofthe excess over $500,000