As of December 20th, President Trump signed The Tax Cuts and Jobs Act of 2017. This bill has a number of significant changes to both businesses and individuals, which will take effect for 2018. These changes lead to potential tax planning opportunities to address before year end. Below Shareholder Mike Seelhoff, CPA has put together a list of key reminders to look into. Please contact your tax advisor with any questions or before implementing any of these strategies.
- Both the corporate and individual tax rates are lower for 2018, therefore taxpayers should defer income from 2017 to 2018, and accelerate prepayment of business deductions from 2018 into 2017.
- The standard deduction will increase to $12,000 for singles and $24,000 for married couples filing jointly. This combined with the limitation on the deductibility of state and local income and real estate taxes of $10,000 per year, leads to an opportunity to prepay state income taxes, real estate taxes, and charitable contributions for 2018 by December 31st. This will provide a deduction for taxes in excess of $10,000 that will be limited for 2018.
- The bill also limits the deductibility of contributions to athletic departments that include a right to purchase tickets. In 2017 those contributions are allowed a deduction of 80% of the contribution remitted. In 2018 and going forward those contributions tied to the right to purchase tickets will not be allowed as a charitable contribution. Generally, we recommend making your 2018 contributions related to athletic tickets by December 31st so those contributions will be 80% deductible.
- Consider a donor advised fund to accelerate several years of charitable contributions into 2017. This strategy will allow you to take the charitable deduction against potentially a higher income tax rate in 2017, as well as allow you benefit from the higher standard deduction. The donor advised fund allows you to deposit several years of charitable contributions into the fund, take the tax deduction when contributed and dole out various donations to your favorite charities in future years.
*These tax planning tips are general in nature and may not be appropriate for all taxpayers. Please contact your tax advisor before implementing any of these strategies.*