It appears very likely a significant tax law change will be enacted by Congress effective for 2018. However, any change for 2018 may have potential effects on your 2017 taxes. Here is how:
Both the House and Senate bills will nearly double the standard deduction to $24,000 for married couples ($18,000 for head of household and $12,000 for single persons). Because of this higher standard deduction, most people will utilize it instead of itemizing deductions. Right now, itemized deductions include, among others, medical expenses (above certain limits), state and local income taxes paid, sales tax paid, property taxes on your home and vehicles, mortgage interest, charitable donations, investment expenses (above certain limits) and unreimbursed employee work expenses (above certain limits). In addition, the tax bills under consideration will repeal or limit the deduction for many of the itemized deductions listed above, thus using the standard will be even more likely.
Because many itemized deductions allowed in 2017 may be repealed in 2018, you many want to consider paying them by 12/31/17. If you are able to itemize your deductions in 2017, these include:
- medical expenses (again only above certain limits)
- state and local income taxes if you live or do work in a state where you pay these
- state sales tax on large purchases like vehicles
- property taxes on your home and vehicles
- investment expenses to your investment advisor/broker
- unreimbursed employee work expenses that your employer does not pay for you
The items listed above are being considered for repeal in at least one house of Congress. Although home mortgage interest and charitable donations are not being considered for outright repeal, if the standard deduction is raised significantly, as proposed, you may need much more of these expenses in order to itemize deductions starting in 2018. Therefore, if you are charitably inclined, you may want to consider accelerating charitable donations and pay them by 12/31/17 instead of waiting until 2018. This way you can take advantage of deducting them in 2017 while the lower itemized deduction threshold is still in effect. Some of you may budget a certain amount for donations annually. If cash flow permits you may want to make all of your 2017 and scheduled 2018 donations before year end to take advantage of the lower itemized deduction threshold in 2017.
Please bear in mind, these are still technically proposed changes, but both the House and the Senate have passed their own tax bill. Now the differences between the two need to be reconciled before a final bill is signed by the President. Thus, nothing is final yet and some of the provisions above may change with a final bill. However, some planning may be warranted now, considering the likelihood of change in 2018.
Please feel free to call us at 577-4040 to discuss these proposed tax law changes, how they may affect you personally, and what you can do before year-end to take advantage of them.
Merry Christmas from CPA Consulting Group, LLP!