On an annual basis, certain individuals should review their income tax situation at the end of each year, so as to minimize their income tax liability for the year. Common planning techniques include deferring income and/or accelerating deductions to the following year. With the current climate of dramatic tax reform in Congress, there is even more of a pressing need to do such year-end tax planning.
While there is no guarantee that the current Republican tax reform proposal will be enacted as presently constituted, individuals should be aware of the proposals, so they are not caught flat footed by potential drastic tax changes scheduled for 2018. While the top individual tax rate is due to be reduced from 39.6% to 35%, virtually all itemized deductions will be eliminated (in exchange for a much larger standard deduction), other than mortgage interest expense and charitable contributions. This means that individuals should strongly consider prepaying state income taxes, real estate taxes, medical expenses, and investment fees by the end of this year, as long as they are not affected by alternative minimum tax (AMT).
For small business owners, there will be benefits of a 25% top tax rate on “pass-through” income, which is income earned from partnerships, LLC’s, and S-corporations. Also, these businesses will be able to immediately deduct all fixed asset expenditures, other than buildings, without any limitations. As a result, business owners may want to postpone major capital expenditures until 2018.
If you are an individual and/or small business owner with a complex tax situation that requires year-end tax planning, our firm has the expertise to deal with such issues. If you have any questions about year-end tax planning issues in the current political climate, please contact us.
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