Now that Congress has passed the 2018 tax reform legislation (“Tax Cuts and Jobs Act”) you may want to take advantage of some year end tax planning opportunities. Here are a few of the more significant developments you may wish to consider.
State and Local Tax Deduction
Beginning in 2018 the deduction for state and local taxes (i.e. your state income and local real estate taxes) is limited to $10,000. If you make estimated state income tax payments, you may wish to do so prior to December 31, 2017. Additionally, you may want to directly pay your 2017 real estate tax to your local taxing authority (and if your mortgage lender escrows your tax payments, you should notify them to avoid excessive escrow tax contributions or duplicate payments). Please note only Cook County allows online prepayment. All other counties require in person or mail payments which must be received by December 29, 2017.
Even though state and local tax payments in 2017 may be subject to the Alternative Minimum Tax and thereby limit the tax benefit you receive, there may be little downside to paying whatever you can in 2017 because in 2018 your state and local income tax deduction is limited to $10,000.
Increased Standard Deduction
The Standard Deduction for 2018 is increased to $12,000 for single taxpayers and $24,000 for married taxpayers filing jointly (from $6,350 and $12,700 respectively). One result of increasing the Standard Deduction (and limiting the deductibility of state and local taxes to $10,000) is that fewer people will receive a tax benefit from itemizing their deductions. If this applies to your situation, you may wish to consider other year end timing moves like making charitable contributions in 2017 instead of 2018.
Change in Tax Rates
The 2018 Tax Cuts and Jobs Act also changed the income tax brackets. As a general rule, for the next few years at least, taxpayers may be in lower income tax brackets and, therefore, deferring income, when allowed, until 2018 or future years may be advisable.
Limitation on Itemized Deductions Repealed
The “Pease limitation” which limited the deductibility of itemized deductions for individuals whose income exceeded $261,500 ($313,800 for married taxpayers) was repealed beginning in 2018. Therefore, if this provision impacts you, you may wish to defer itemized
deductions until 2018.
Please remember that each person’s tax situation is unique. You should confer with your tax and legal advisors regarding any year-end tax planning opportunities in making your decision. Whether you are located in Schaumburg, Hoffman Estates, Bartlett, Palatine, Barrington, Streamwood or any area in the greater Chicagoland area contact William F. Kelley or Matthew X. Kelley to discuss the GOP tax plan and how our firm can help you plan accordingly.
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