There’s still time for last minute tax planning. The sweeping tax code changes mean there’s opportunity for many taxpayers if they act now. The changes won’t go in to effect until January 1, 2018 and therefore will appear on 2019 tax returns. So the old rules still apply for the rest of the year.
First, tax rates for corporations and individuals are likely to be lower. If you can defer income, say from a bonus or from your business, you can be taxed at lower rates if you defer it. Here are the new brackets:
Tax brackets and rates
- 10% on the first $19,050 of income for couples and $9,525 for individuals
- 12% above $19,050 for couples and $9,525 for individuals
- 22% above $77,400 for couples and $38,700 for individuals
- 24% above $165,000 for couples and $82,500 for individuals
- 32% above $315,000 for couples and $157,500 for individuals
- 35% above $400,000 for couples and $200,000 for individuals
- 37% above $600,000 for couples and $500,000 for individuals
Pass through entities (basically everyone but a corporation) get to deduct 20% of income. This change levels the playing field between corporations and pass through entities who were historically taxed at the taxpayer’s ordinary income tax rates.
Lower rates also means that the value of deductions will go down so get those deductions in now. Some deductions, like the state and local tax deduction (including property taxes), will be capped at $10,000. Therefore, if you live in a high-tax state like California and New Jersey, and you can afford to pay 2017 or late taxes that will be advantageous. However don’t prepay 2018 taxes that loophole was closed.
Employees will lose the ability to deduct un-reimbursed job expenses. Sum up the tools and supplies, occupational taxes, work uniforms, union dues, and expenses for work-related travel.
Homeowners in the process of selling their principal residence may want to wrap up the sale before year end if they’ve only lived in the house 2 of the past 5 years before the sale. The new law would only allow exclusion of $250k/500k gain if you lived in the house for the 5 of last 8 years. Interest on home equity loans will also no longer be deductible.
Moving for a job? Pay up this year because that deduction is gone too.
Getting a divorce? Wrap it up before year end. Alimony is no longer deductible for divorces finalized after December 31, 2017. Payments received would be excluded from income.