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End of Year Tax Strategies After Passage of Tax Cuts and Jobs Act

By MarksNelson on December 28, 2017 in Articles, Tax
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As most of you have probably heard, President Trump signed the Tax Cuts and Jobs Act into law last Friday, December 22, 2017. We will be sending a more in-depth analysis of all the changes included in this bill in the coming weeks. While most of the changes impact tax years beginning in 2018, there are a couple of tax saving items you might consider before the end of 2017:

  • Starting in 2018, individuals can only deduct non-business state and local property and income taxes up to $10,000 ($5,000 for married taxpayers filing a separate return). Therefore, you may want to pay any of these taxes that are due in 2018 by December 31, 2017 to get the federal deduction.  Please note, however, you can only deduct state and local income taxes up to the amount of taxes imposed for 2017. Therefore, any prepayment of your 2018 income taxes would not be deductible on your 2017 return.

This may be even more important to consider this year due to the Kansas tax law change removing the exemption for income from sole proprietorships and pass-through entities effective January 1, 2017. You may want to consider paying the Kansas tax by December 31, rather than waiting to pay it when the return is filed in 2018, to get the federal deduction for the state tax payment in 2017.

The IRS further clarified yesterday that state and local property taxes can only be deducted if the payment is for taxes that have been assessed prior to 2018. Therefore, the prepayment of 2018 property taxes that have not been assessed as of December 31, 2017 would not be deductible on your 2017 return.

The payment of any state and local taxes should only be considered if you are not paying alternative minimum tax (AMT) since no deduction of state and local taxes is allowed for AMT.

  • Starting in 2018, no deduction for miscellaneous itemized deductions subject to the 2% floor is allowed. You may want to consider paying items such as broker fees and other investment expenses prior to December 31, 2017 to get the deduction in 2017. Please note these fees are only deductible if the aggregate of these items exceeds 2% of your adjusted gross income and you are not paying AMT.
  • Starting in 2018, no charitable deduction would be allowed for any payment to an institution of higher education in exchange for which the payor receives the right to purchase tickets or seating at an athletic event so you might consider prepaying these items in 2017.

While there is no change to other charitable deductions, you may want to consider paying any charitable donation prior to December 31, 2017 to get the deduction on your 2017 return.

  • The Act changed the bonus depreciation which may be claimed on assets used in a trade or business that were acquired and placed in service after September 27, 2017 from 50% to 100%. Therefore, any business asset (new or used) purchased after that date can be fully written off in 2017 as long as the asset is placed in service by December 31, 2017. This would include vehicles which are rated at more than 6,000 pounds gross vehicle weight, assuming it is used 100% in a trade or business.

Many of these items are complicated, especially if AMT is involved, so please contact your MarksNelson advisor at 816-743-7700 if you have any questions.

About the Author

MarksNelsonView all posts by MarksNelson
MarksNelson LLC works with clients to help safeguard and grow their businesses. Our ultimate goal is to help our clients to Move Forward. The firm provides Assurance, Accounting Services and Business Advisory, Business Valuation, Consulting, Cost Segregation, Employee Benefit Plan Audits, Litigation Support, Forensic Accounting, International Tax, State and Local Tax and Tax planning, advisory and compliance services. MarksNelson is a member of The Leading Edge Alliance, the second-largest international professional association of independently owned accounting and consulting firms, serving clients who need additional resources on a national or international level. MarksNelson has significant accounting and business advisory experience in the auto dealership, construction, insurance, manufacturing, distribution and real estate sectors. The firm was named among the 2014 Best Accounting Firms for Leadership Equity by the 2014 Accounting MOVE Project for its dedication to gender equity.