If You Want to Know How the New Tax Code Affects You, Read This First

By Walpole CPA on Jan 18, 2018 in Articles


Reprinted from the New York Times

If You Want to Know How the New Tax Code Affects You, Read This First

If you’re struggling to figure out exactly how the tax overhaul will affect you, you’ve come to right place. Here is a brief overview of the new provisions, and what it means for your returns.

  • If you’re a homeowner, the bill may increase your monthly housing costs by changing the rules for deductions for property taxes and home equity loans. The changes have prompted many homeowners to prepay their 2018 property taxes, but the Internal Revenue Service has warned that doing so won’t pay off for everyone. To qualify for the deduction, you’ll need to have already received your 2018 property tax assessment.
  • If you’re considering buying a home, you might have been better off doing it in 2017. Next year, state and local income taxes plus property taxes, added together, will no longer be deductible beyond the annual sum of $10,000. That may make buying a house with high property taxes — or buying at all — less attractive. And if you're looking at homes that require mortgages over $750,000, you won't be able to take a deduction on the interest for amounts above that level starting next year.
  • If you want to send your kids to private school, you might want to open a 529 account or start adding more money to it. These accounts help parents pay for their children’s educations by letting them take money out free of taxes. Until this year, you could use them only for college expenses. Under the bill, parents can use money from 529 accounts to pay for private elementary and secondary school as well.

“I’m horrified that it happened.”
- Andrea Feirstein, a consultant to 529 plans.

  • … or if you’re planning to have children, well, it’s time to get going, especially if you live in a red state. Many blue states already require employers to offer paid financial leave for new parents, and many red states don’t. The bill provides incentives to businesses in those states to start offering parental leave — but only through 2018 and 2019.
  • If you own a small business, a pass-through provision will allow you to start deducting 20 percent of your qualified business income from a partnership, S corporation and sole proprietorship, starting next year. There are limits, including a phaseout for the deduction that begins at $157,500 of individual income and $315,000 of income for couples filing jointly.
  • … and that could be a big deal for the gig economy. The provision will also allow independent contractors, like Uber drivers, to use the same deduction. Many people worry that this could accelerate the trend toward contract positions at the expense of full-time employment.
  • … and it’s also a win for the wealthy. Millions of taxpayers at the highest income levels will now be able to get similar tax relief as corporations by taking advantage of the pass-through provision.
  • If you’re expecting to inherit millions of dollars, the amount you can receive without being taxed is about to go up. Currently, estates worth less than $5.5 million can be transferred with no tax. Between next year and 2026, that base will roughly double. That means the best time to inherit your fortune, if it’s more than $5.5 million and less than about $11 million, will be from 2018 to 2026.
  • If you’re planning to give money to a charity, you might want to do it before the end of the year, before the new tax rules kick in. Many taxpayers won't get any benefit from charitable giving next year because the new, higher standard deduction means more people won’t itemize.. If you get creative and pool your giving in certain years, however, you may still be able to benefit. Another twist on pooling: contributing to a donor-advised fund, which is like a miniature personal foundation.

“I would not wait until the middle of next week.”
- Howard Hook, a financial planner, referring to when you should contribute to a donor-advised fund for a 2017 tax deduction.

  • If you were hoping to file your tax return on a postcard, as Republicans have promised, you may have to keep waiting. Lots of deductions, loopholes and complexity remain in the code. So the postcard-sized tax form President Trump kissed on camera in November may not be reality for lots of people anytime soon.

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