Tax Time and Our New Tax Laws

It is almost tax time and we have new tax laws on the books. As exciting (or not) as tax law may be to you, for the most part, the new laws will not affect your 2017 return. Since the first quarter of 2018 has already slipped by, however, this is a great time to consider the impact of the new laws and how they will affect your future tax returns.

First off, you should note that most of the individual tax provisions are temporary. They will expire on their own accord in 2025, automatically reverting to 2017 rules, unless extended by Congress in the meantime. On the other hand, the corporate tax changes are permanent – at least until Congress votes to change them.

For individuals, the standard deductions are nearly doubled, rising to $24,000 for couples, $12,000 for singles, and $18,000 for heads of households. With these higher standard deductions, we expect fewer people will itemize, especially since the new laws eliminate many of the deductions individuals customarily claimed.

One of the more controversial changes to deductions is the limitation on deducting state and local taxes (SALT). Taxpayers are now limited to only deducting $10,000 of any combination of residential property taxes and state income or sales taxes. By contrast, property taxes remain fully deductible for businesses or a for-profit activity.

Other write-offs commonly used by individual filers in the past have been eliminated, including job-related moving expenses (except for military), as well as ALL miscellaneous write-offs subject to the 2% AGI threshold such as: employee business expenses, brokerage and IRA fees, alimony for post-2018 divorce decrees, personal casualty losses (except those in presidentially declared disaster areas), theft losses, hobby expenses, and tax return preparation costs. Possibly more significant in Las Vegas than in other areas, the write-off for personal gambling losses to the extent of winnings has remained in-tact. In contrast, small business owners and self-employed persons would still be able to declare business expenses in their IRS Form 1040 Schedule C.

Regarding estate taxes, Congress nearly doubled the lifetime estate and gift tax exemption to just over $11 million. Done properly, under the new laws, a married couple could gift or transfer an additional $11.2 million at death. Thus, while the law is certain, anyone who can afford to do so should use their exemption to shelter these assets from estate taxes. The higher exemption rates are temporary measures that will sunset in 2026, automatically returning to the $5.49 million limit of 2017 absent further Congressional action.

The annual gift tax exclusion amount was not changed, but jumps to $15,000 due to an inflation adjustment. Asset step-up in basis at death also remains unchanged. Income tax rates for trusts and estates have been revised to 4 brackets ranging from 10% to 37% of taxable income.

These tax law changes are significant, and Kling Law Offices can help you understand their effects and how you can take advantage of the planning opportunities presented.