The Tax Cuts and Jobs Act affects all taxpayers. With the new law comes a new set of complexities, so there is a lot to consider moving forward. The resources you put into planning now could save you time and money in the future. Modeling alternative scenarios for multiple years allows you to identify the strategies that are best suited for you and/or your business, so Eide Bailly has created a list of the top ten considerations to help you paint a clearer picture of tax reform:
- Corporate Rates: The corporate tax rate has decreased to 21 percent, so it’s important to review your business structure to be sure it still makes sense post-tax reform.
- New Deduction for QBI: The new 20 percent qualified business income deduction may provide you with tax savings, but limitations can apply – many businesses are reviewing their operations and business structures to ensure they obtain the maximum benefit from this deduction. If your business income qualifies, the top individual tax rate effectively drops from 37 percent to 29.6 percent.
- Review Deductions: Consider the timing of deductible expenses in light of the increase in the standard deduction. For businesses, it’s also important to note that entertainment expenses are no longer deductible, and changes have been made to the deductibility of meal expenses and certain fringe benefits.
- State and Local Tax: The aggregate itemized deduction for state and local income taxes or sales taxes and state and local property taxes is now limited to $10,000. This will affect many taxpayers.
- Alternative Minimum Tax: While the individual AMT is left in place, the exemption amount has increased, and many individuals who have routinely been subject to the AMT will no longer be subject to this additional tax.
- Accounting Methods: Taxpayers using the accrual method of accounting may want to explore whether they qualify to change to the cash method, and other accounting method changes may be available that accelerate deductions into higher tax rate years.
- Depreciation: The new law provides the option to take 100 percent bonus deprecation on qualifying asset purchases, so it’s important to figure out if this opportunity can benefit you, and whether it should affect the timing of those purchases.
- Child Tax Credit: The child tax credit has increased to $2,000 per child, and the phase-out thresholds have also increased, so you may want to determine whether the increased credits will offset the effect of losing personal exemptions.
- Alimony: The tax treatment of alimony payments is set to change after 2018 – if you’re considering a divorce, there may be varying income tax consequences depending on when it is finalized.
- Estate Tax Exclusion: The basic exclusion amount available to each individual for estate tax purposes has doubled, so it’s more important than ever to review your estate plan.
Contact your Eide Bailly professional or visit www.eidebailly.com/TaxReform to learn more.