Cliff notes version of Friday’s tax reform proposal


I’ve spent the week-end digesting what’s in this tax bill, now that it’s formed up and ready for a vote. Obviously it could still fall apart, but here are some quick thoughts. I’ve bolded the ones that could use attention in December.

Standard deductions are going up, and some of you may find you have even less reason to itemize than ever before. I’ll revisit my recommendations to everyone individually this week. (Festive yule, anyone?) But the short version is, you’ll benefit more from itemized deductions in 2017 than in 2018 in every case.

State and local taxes will be capped at a total of $10,000. Quite a few of my clients pay more than that, which basically means it’s better to pay a state quarterly in December, 2017 and pre-pay your real estate taxes in December, 2017, too.

Charitable deductions remain unchanged. In fact, there’s more reason than ever to do charitable contributions straight from retirement accounts for people over 70. We have time to discuss this more, but the higher rates in 2017 mean it’s still a good idea to make charitable gifts in 2017.

Miscellaneous itemized deductions are going away, which affects the deductibility of union dues, employee business expenses, my fees, etc. Two work-arounds for the deductibility of my fees: have me allocate as much as I can to qualified money and withdraw it as a management fee from IRA investments (I can explain more in person) OR allocate some percentage to your self-employment. Don’t worry, I’ll come up with allocations for people. Prepaying me in 2017 is always an option, too, but not the only one.

That leads to the next issue:

Tax rates are nudging downwards next year for everyone. Remember all those times when I said, “it looks like you’ll *always* be in the [15/25]% bracket”? Now those are 12% and 22%. There’s a modest improvement in tax brackets all the way up the income levels. You’ll lose some itemized deductions so it’s not a clear mathematical win, but you could save maybe $2,500 in taxes on $100,000 in income next year.

Sadly, my lovely trick about Roth conversions (where we can get a “do-over” by recharacterizing if we want to) is going away, making Roth conversions in 2018 much less attractive even at the lower rate. I think the trick still works for Roth conversions in December, though, and I’ve got a few of those in process. (This is a mass email, obviously.)

There’s good news with kids under 17; a higher refundable tax credit. But bad news for people with kids over 16; you’re losing their exemption entirely, and education credits remain limited so they phase out at the mass-affluent level. I have no immediate strategies here. I wish I could keep my kids little, too!

There’s good news about 529 plans: it looks like we can use it for kids in private schools now, not just college.

There’s good news for sole proprietors and LLCs and partnerships, and to some extent S Corps starting in 2018. (S Corp salaries need to be kept low, it looks like, allowing more of the income to come from business profits.) We have time to talk about this in person if it applies.

Want to read more? I recommend the #taxtime tag at Forbes for up-to-the-minute articles. https://www.forbes.com/search/?q=TaxTime&hashtag=t…If you try to google, make sure you keep the time limit for your search really recent!