Posted in Tax Law & IRS Defense
The Tax Cuts and Jobs Act has now made its way through Congress and is awaiting signature from the President to become law. Since the Act generally gives a tax break to most people, it is expected to add $1.5 trillion to the deficit over the next ten years. A law enacted in 2010, called PAYGO, requires such a large deficit created by a bill to be offset by spending reductions. Currently, these cuts would require $150 billion in cuts for 2018, including a $25 billion cut to Medicare. Congress would either have to change this law to avoid these cuts, or the President can delay the cuts by signing early next year. However, Congress is currently working to pass a spending bill to prevent a government shutdown, and a waiver concerning PAYGO is in this spending bill, so we may see this Act become law in 2017.
This will be the first major overhaul of the tax code since 1986. There are many planning opportunities to take advantage of the upcoming new laws. Among other changes, at least until 2025, the Act lowers the tax rates on most personal income tax brackets, increases the standard deduction, repeals the personal and dependent exemption and replaces it with child credits, and sets some new limits on allowable deductions.
The changes will be in effect for tax years starting in 2018, so do not expect a change from current laws when completing your 2017 tax return. However, the changes starting in the 2018 year may alter whether expenditures that you typically list now as itemized deductions will be able to benefit you in 2018. The standard deductions are increasing to $12,000 and $24,000 for a single person and a married couple filing jointly, respectively, in 2018. Therefore, if your circumstances are that you benefit from itemized deductions, you may want to maximize your deduction in 2017, if you are able, while it may be of more benefit to you (for example, if you itemize now but would take a standard deduction in 2018). This may include taking actions before the end of the year such as paying your property tax bill, making charitable contributions, choosing to incur medical expenditures, and optimizing sales tax deductions if you buy a car. It is highly recommended that you consult your tax professional(s), such as a tax attorney or an accountant, to review your personal circumstances considering this new legislation.