Tax Reform and How it May Affect You
As of today, the House and Senate have each passed their own
versions of the tax bill. They will have
to hammer out differences between the plans before a final bill can be approved
and signed by President Trump.
Here are a few pros and cons that we see in the current
bills. Although not yet final, these
changes are expected in some degree in the final legislation, which would become
effective for 2018 tax returns.
Pro: The standard deduction will be increased depending
on your filing status to $12,200 for single and $24,400(House) and
$24,000(Senate) for married filing jointly.
Con: The personal and dependent exemptions will no
longer be available. They were worth
$4,050 per person last year. A family of
four would lose $16,200 in personal exemptions.
Pro: Both plans call to increase the amount of the
child tax credit and increase the income level at which that credit is phased
out.
Con: Homeowners beware: Both proposed versions of the bill cap the real
property tax deduction to $10,000.
Con: Deductions for state and local income taxes
would be eliminated.
Con: The mortgage interest deduction limits the
deduction on new mortgages ($500,000 principal).
Con: No mortgage interest deduction on vacation
homes.
Con: Repeals the deduction on home equity
interest.
Con: Miscellaneous deductions will be
eliminated. This includes tax
preparation fees, union dues, unreimbursed employee expenses, investment
expenses…
Pro: Everyone’s favorite Alternative Minimum Tax
would be gone under the House bill, whereas the Senate bill would keep the AMT (boo!)
but raise the exemption and phase-out thresholds.
Con: Tax rates
would change under both plans – The House version has just 4 tax brackets
compared to the Senate’s 7 brackets.
Fewer tax brackets mean a bigger jump between brackets.
Pro: Partnerships
and S-Corps taxed as pass-throughs would see a reduction in tax rate on that
income under both plans, although the details differ.
What to do: CONTACT
YOUR CPA RIGHT AWAY! Consider paying
for expenses before year end that are a deduction in 2017 but will be limited
or eliminated in 2018 such as real property taxes, state and local estimates,
tax preparation fees, etc.
Note: This is only a
brief listing of the potential changes to be made. Stay tuned to learn more.
