Happy Tax Reform Day!
The GOP Tax Bill, also known as HR.1 or the Tax Cuts and Jobs Act (and a few other names I won’t mention here), was passed by the Senate last night, and it is a forgone conclusion that it will go into law today. Regardless of where you stand politically, these new tax laws are the new laws that we all must follow. (And boy will we ever follow them…to a T!) I’ve immersed myself in the 1,097 pages (or at least the half or so of those pages that pertain to my clientele) and it is riddled with tax planning opportunities. On a very personal note, as a proactive tax planner, this is the day I’ve been preparing for ever since I started my tax advisory practice back in 2005. This may very well be the only major tax reform that will occur during my tax planning career. So you can bet your you-know-what that I will find ways to squeeze every penny out of this tax bill that I can for my clients.
Urgency – This Bill is Temporary
The race is on. The tax cut is only good for individuals for tax years 2018 through 2025. That means we have 8 years to save as much tax as possible under these temporary rules, before the plug is pulled, and taxes return to a level even higher than they are today. The tax cuts for corporations are permanent. (Loophole #1: We might all want to form corporations in 2026). My time will be incredibly scarce this year, but please do whatever it takes to get on my calendar to ensure we do the proper tax planning as soon as possible.
Simplification – For Some. But Not For All
They promised to simplify the tax code. That didn’t happen. We will not be filing tax returns on postcards. (And darnit, I really was wondering how many people were willing to put their SSN, name, and income on a postcard for their mailman to read). More people will take the standard deduction and will no longer need to itemize deductions on Schedule A. That does mean a lot of people will now find their tax return a little bit easier to prepare, and so I do expect our office will lose some of those easier-to-prepare tax returns next year. I am ok with that, as it actually frees up our staff’s time to focus on the new complexities for the business owners that can really use our help.
The complex Alternative Minimum Tax (AMT) still exists. Yuck. Though I do think it will come into play for far fewer people now that State and Local Tax deductions are heavily limited.
Pass Through Entity Deductions will be all the rage, and the rules are ridiculously complicated. A pass-through entity is a partnership, S Corporation, LLC, or Sole Proprietor (which is actually no entity at all!). Hint: nearly all of my clients have a pass through entity business. Fortunately for you, I already have pages and pages of notes and potential planning strategies that will reduce your tax to the absolute legal minimum once these new rules go into effect on Jan 1.
What To Do Before December 31, 2017
Speaking of urgency, there are a few things you can consider doing before the ball drops in Times Square. Here is a quick list:
- If you make quarterly estimated tax payments, consider making your state tax payment in December, rather than the due date of Jan 15, 2018. If you are subject to AMT, no need to rush that payment, as it will net you no tax impact. Do NOT prepay your 2018 tax year state taxes, as that has been strictly prohibited by the Bill. Only pay your Q4 2017 state tax.
- Consider paying your January real estate property taxes before December 31. Again, if you are subject to AMT, no need to pay any sooner than the due date.
- Hint: If you don’t know if you pay AMT or not, look at Line 45 of last year’s tax return. If there is a number on that line, you pay AMT, and will get no tax benefit for paying these SALT (State And Local Tax) amounts early.
- If you are self-employed in a pass-through entity, defer as much income to 2018 as you can. Delay revenues and prepay expenses.
- Do you typically deduct Miscellaneous Itemized Deductions and Unreimbursed Employee Expenses? (If you see a number on Line 27 of last year’s Schedule A, the answer is yes). Every deduction in that section is repealed next year. So prepay any union dues, unreimbursed employee expenses, financial advisor fees, tax prep fees (yikes!), union dues, and tuition for courses to improve job skills. Pay those in 2017 for a deduction, or lose those deductions altogether for the next 8 years. This rule change itself will crush home-based sales people that drive lots of miles and get no reimbursement from their employers.
- If you typically take large unreimbursed employee expenses, go to your employer and beg/force them to either start reimbursing your expenses under an accountable plan, or consider setting you free and changing your status from W-2 to 1099 contractor. (Consider your employer benefit plan before making those demands though! Or at least call me first).
- Buy equipment (but only if you need it!). Full expensing of fixed asset purchases is in the Bill, and is retroactive to purchases made after September 17, 2017.
- If you have already paid significant medical expenses in 2017, and the total is more than 7.5% of your income, the new Bill reduces the 10% income limitation to 7.5% (the pre-Obamacare level), and it is retroactive to January 1, 2017. So go ahead and pile on any additional medical payments that you can before December 31 to maximize your deduction.
- Figure out if you will be able to Itemized Deductions in 2018. This will take some light math. Add up your annual mortgage interest (on your primary mortgage only! Equity line interest will no longer be deductible starting in 2018), donations, deductible medical expenses in excess of 7.5% of your income, and up to a maximum of $10,000 and state and local taxes. If you are single and that number is greater than $12,000, or if you are married and that amount is greater than $24,000 you will still be itemizing deductions next year. If your total is less than those amounts, plan on taking the standard deduction starting in 2018. For some of you, 2017 might be the last year you can actually get a tax benefit for things like charitable donations for a while, so consider making larger donations than usual. If you have a basement full of boxes and clothes that you’ve been meaning to donate, next week is the time to do it!
Key Areas of The Bill
I could summarize the Bill, but it would take up too much space here.
Here is a link to the article that I feel best summarizes the change in the Bill:
https://www.forbes.com/sites/anthonynitti/2017/12/16/the-tax-bill-is-finalized-whos-happy-and-whos-not/#641d46832288
Who Needs Tax Planning Immediately?
In order of importance, here is a list of specifically who needs to give me a call (tell your friends too!):
- If you or your spouse are self-employed in a service-based business, and your total combined annual AGI is between $315,000 and $415,000, you need to call me immediately. If you don’t I will hunt you down and force you to do some tax planning. You have the most to gain or lose based on the way the new Bill was written.
- If you are single and are self-employed in a service-based business, and your total annual AGI is over $157,500, you need to call me immediately. If you don’t I will also hunt you down and force you to do some tax planning. There is just far too much at stake for you based on the way the new Bill was written.
- If you and/or your spouse are self-employed in a professional services business (accounting, health professions, legal, financial advisory and investments, consultants (vague, I know), or any other licensed professional service), please be sure to get some time on my calendar, either in January, or during our tax season review, or right after tax season. The higher your income level, the more urgent your planning needs are, due to the way the new rules and limitations are written.
- If you operate any business in a pass through entity, whether service-based or not, you at a minimum need to work with us on getting your 2018 estimated quarterly taxes calculated. That can happen during tax season. If we review your circumstances and determine you require more formal planning, we will get you scheduled for a formal planning session right after tax season ends.
- If you own multiple businesses and/or real estate investments, get on my calendar at some point in 2018 (ideally May or June) to see if you need to do anything special to maximize your tax benefits under the new rules.
- If you are considering a major move, such as converting from a W-2 employee role to a 1099 contractor role, give us a call and we can help calculate what the potential tax impact of that will be. Likewise, if you are buying or selling a business or real estate investments, please have a discussion with us about that first, to ensure you do so in the most tax-advantaged way possible.
- There are several other scenarios I could list, but I think you get the point. If you have a hunch you can benefit from tax planning, give us a call and let us know the situation, and we will let you know what we think the best next steps are.
How Will Concierge Tax Services Deliver?
As you might imagine, implementing the largest tax reform changes to happen in the last 31 years, will put a tremendous strain on our office. Our phones have been ringing off the hook for the last few weeks, and being a nationally-recognized, award-winning tax planner (not trying to sound arrogant, but it is the truth) will only result in an overwhelming wave of requests for our office. I already work 12-14 hours/day outside of tax season, and 16-18 hours a day in tax season, so I can’t just choose to “work more hours” as those hours simply do not exist. In short, we expect to have a supply/demand problem. Luckily, we recently made some changes to our office staff, to upgrade our skill set and overall capacity.
Here is how we plan to deliver:
First priority will go to our Concierge Level clients. Those clients have an existing monthly retainer with us and get the fastest turnaround times and direct access to my calendar. If you’ve been “on the fence” about becoming a Concierge Level client with us, now is the time to do it!
Next, we will review our existing client list, in search of those that meet the descriptions listed above, and start working with them to do any tax planning that is necessary.
To accomplish the above, I will need to delegate many simpler tax returns or tax inquiries to my staff. I’ve been fortunate to hire some really dedicated and highly-skilled people in the last couple of years, and they will serve you very well. You might be used to dealing directly with me, but I assure you the 2 Enrolled Agents that I have on staff will give you tax advice that is just as good as I can.
We will be very selective in taking on new clients. If they fit the description above, we are by far the best service provider they will find, and so we will take them on as best we can.
Analyzing and implementing the new law, providing calculations, recommendations, advice and guidance, will be billed out at our hourly rates. That kind of work is not included with the tax return, which a separate assignment based on compliance work. A certain level of planning is already included in our Concierge Level service package agreements at no additional cost. Projections and basic planning billed hourly will be done quickly and efficiently to keep your cost down. If formal planning is required, resulting in a larger project, we will apply any hourly fees towards a fixed flat planning fee, which we can quote to you based on the complexity of your particular planning project and needs. We’ll be putting as much info as possible out there as we can, for the do-it-yourselfers, but any personalized planning would be billable. Just letting you know this ahead of time!
More info to come on all of this, so stay tuned. I try not to flood people’s inboxes with too much email, but this is all really important stuff, and I need to keep you in the loop, so I’ll just apologize in advance if I over-do it. It’s for your own good!
Have a wonderful holiday week, and I am sure we’ll be in touch soon!
