To pre-pay or not to pre-pay?

Tax Cuts and Jobs ActTo pre-pay or not to pre-pay? That was the question that was the topic of many discussions relating to taxes at the end of 2017.  However, it only scratches the surface of the issues resulting from the passage of the Tax Cuts and Jobs Act (Act).  Most, if not all, taxpayers will be affected by the sweeping reforms.  Listed below are selected federal Act provisions and selected state tax provisions that may impact you for 2017 and beyond.  In light of these changes, we recommend that you begin tax planning as soon as possible.  That was the question that was the topic of many discussions relating to taxes at the end of 2017.  However, it only scratches the surface of the issues resulting from the passage of the Tax Cuts and Jobs Act (Act).  Most, if not all, taxpayers will be affected by the sweeping reforms.  Listed below are selected federal Act provisions and selected state tax provisions that may impact you for 2017 and beyond.  In light of these changes, we recommend that you begin tax planning as soon as possible.

For 2017

  • Medical expenses are deductible as an itemized deduction so long as they are greater than 7.5% of adjusted gross income.
  • Additional standard deductions are available for certain net disaster losses (also for 2016).• For businesses, some key depreciation provisions were implemented.
  • For NJ resident/non-resident Gross Income Tax Returns, military veterans honorably discharged or released under honorable circumstances from active duty in the Armed Forces of the United States by the last day of the tax year are eligible for a $3,000 exemption.

For 2018

  • The Act has specified seven tax rates for individuals: 10%, 12%, 22%, 24%, 32%, 35% & 37%.
  • The “kiddie tax” is no longer based upon the “allocable parental tax,” but is determined by applying the ordinary and capital gains rates applicable to trusts and estates to the unearned income of a child.
  • The standard deduction increases to $12,000 for single taxpayers and $24,000 for married individuals filing a joint return.
  • There is no longer a deduction for personal exemptions.
  • The moving expense deduction is repealed for tax years 2018-2025, with the exception of special rules applicable to members of the Armed Forces.
  • Owners of partnerships, S corporations, and sole proprietorships may be allowed a deduction in an amount equal to 20% of qualified pass-through business income, subject to a number of limitations and qualifications.
  • The itemized deduction for mortgage interest is limited to interest on up to $750,000 of acquisition indebtedness for mortgages entered into after December 31, 2017.
  • Taxpayers will no longer be able to deduct interest on home equity indebtedness.
  • State and local income tax and property taxes will be limited to $10,000 as an itemized deduction.
  • The Act removes miscellaneous itemized deductions subject to the 2% of adjusted gross income floor, so no longer can taxpayers deduct such things as tax preparation fees, union dues, investment advisory fees & unreimbursed business expenses.
  • The child tax credit increases to $2,000 per qualifying child, with a substantial increase in the income limit to be able to claim the credit.
  • Beginning with gifts or deaths on or after January 1, 2018, the Act doubles the exemption amount, for gift, estate or generation-skipping transfer taxes to approximately $11.2 million per person, adjusted annually for inflation.  The increased exemption expires at the end of 2025.
  • The annual gift tax exclusion increases to $15,000 per recipient.
  • Casualty losses will only be allowed to the extent it is attributable to a federally declared disaster.
  • Qualified tuition plans (529 Plans) are modified to allow for distributions to be made for elementary and secondary tuition up to $10,000 per student enrolled at a public, private, or religious elementary or secondary school.
  • For businesses, some key depreciation provisions were implemented, the corporate tax rate is reduced to 21% and the dividends received deductions are reduced, domestic productions activities deduction is eliminated, tax deferral on non-real property like-kind exchanges is eliminated, business expense deductions are eliminated for most entertainment costs and commuting benefits, eligible employers are entitled to claim a credit for paid family and medical leave, subject to certain requirements, businesses with average annual gross receipts >$25 million may be subject to limitations on interest expense deduction.
  • New Jersey estate tax is repealed beginning January 1, 2018. The New Jersey inheritance tax continues to apply for transfers outside of the decedent’s immediate family.

After 2018

  • For alimony agreements entered into after December 31, 2018 alimony will no longer be deductible from gross income of the payer and no longer includible in gross income of the recipient for federal income tax purposes.
  • Beginning in 2019 there is no longer a shared responsibility payment for those taxpayers that do not have health insurance.

If you need more information about these changes or we can assist you with any other tax issues, please do not hesitate to contact us.