Your guess is as good as mine when it comes to what, if any, new tax law might result from the chaos that is known as Congress and POTUS. The original tax outline proposed by the president months ago, the original and revised versions of the tax bill proposed by the House and the original and revised versions of the tax bill proposed by the Senate all differ to a large extent. As such, it seems questionable whether the powers that be will ever be able to reconcile their proposals and agree on something they can all pass. Isn’t democracy wonderful? Even with all its warts, it beats the alternative – that’s all I can say.
All the proposals on the table suggest grand changes to the current tax law for sure. All of them propose a change in tax rates and brackets although the changes proposed are very different from proposal to proposal. All of them propose an increased (double) standard deduction available to everyone which means itemizing deductions for the majority of taxpayers who currently do so could be a thing of the past. Speaking of itemized deductions, those who still could benefit from itemizing under the new proposals may not be able to include many of the deductions that are currently included as potential itemized deductions. The ability to deduct state income taxes paid as an itemized deduction are a hotly debated issue in the current negotiations.
Assuming that a tax bill is signed into law this year or early next year, the effective date of the changes it contains would likely be January 1, 2018. This means that, assuming a bill passes and still contains the reductions in tax rates and changes to itemized deductions that the current proposals offer, taxpayers will want to consider ways in which they can defer income into 2018 and accelerate deductions into the current year so as to take advantage of deductibility that may no longer be offered in 2018 and beyond. The general idea would be to show lower taxable income in 2017 when rates are higher and higher taxable income in 2018 when rates could be lower.
Who needs a great movie for drama when we have all the drama we can handle as provided by our elected officials? At least the uncertainty we are experiencing now does not largely affect the year-end 2017 tax planning we are currently conducting with our clients since the effective date of the new law would be in 2018. The only consideration we must give regarding the potential new tax legislation is how aggressively we defer income and accelerate expenses this year as discussed above.
If you have questions regarding your 2017 tax situation or the proposed new tax law, please contact us. We offer a free initial consultation.