TAXES
On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act of 2017 into law. The law will not change how most people report their 2017 taxes (due in 2018). The tax law will impact tax returns filed for tax year 2018 (due in 2019) and later.
Because this law is projected to increase the Federal deficit by $1.5 trillion, it is subject to the Byrd Rule requiring 60 votes in the U.S. Senate to become a permanent law. Since the Senate did not have the 60 votes (they had only 51), some provisions of the law will begin to phase out or expire between January 1, 2023 and December 21, 2026. Most of the tax cuts for businesses are permanent, while the decrease in individual income tax rates and the increase in the estate tax credit are temporary. For many taxpayers, the decrease in tax rates combined with an increase in the standard deduction will simplify tax returns and will lower the amount people have to pay in Federal income taxes in the short term. However, some reports indicate that the lowest income earners may see a tax increase starting in 2019 and increasing through 2027 due in part to reduced healthcare subsidies. In the longer term, once the tax provisions phase out or expire, it is expected that the overall tax burden will increase for most lower to middle income wage earners. Certain individuals are likely to see a tax increase as a result of the 2017 Tax Act; people who live in states with high state and local taxes. Right now, for most Alaskans, this is not a concern, especially because the state does not have an income tax. (This makes it less likely that Alaskan Legislators will look to an income tax solution for Alaska’s budget gap.) Certain deductions have been suspended, repealed, modified, or reduced. These include the deductions for moving expenses, alimony payments, personal casualty losses, qualified residence interest, and qualified bicycle commuting. If these are deductions that you have been taking or were planning on taking, be sure to discuss how these specific changes will impact your tax return with your accountant or tax professional. There are a number of provisions in the new tax law that will benefit individuals of high net worth or who own businesses. The alternative minimum tax (AMT) was reduced for individuals and eliminated for corporations. Combined with the increase in the estate tax credit and changes in the tax laws for pass-through entities and corporations, this will significantly reduce Federal taxes for many business owners, high-income earners, and individuals with a net worth of over $11.2 million ($22.4 million for a married couple). If you are a business owner or have more than $5 million in assets (or are likely to before December 31, 2025), there are a lot of changes that may help to decrease your overall taxes. A tax professional can help you determine whether there are any changes you need to make in 2018 to take advantage of the tax laws, especially if you are a person who provides services in a pass-through entity, like a partnership, LLC, or S-corporation. In addition to income taxes, the law included a provision that opened the Arctic National Wildlife Refuge (ANWR) to drilling and another that repealed the individual mandate in the Affordable Care Act. Starting in 2019, taxpayers will no longer be required to carry a minimum level of health insurance. In 2018, if you do not have the required health insurance or if you do not qualify for an exemption, you still may have to pay a fine for not having adequate health insurance. Also, colleges with large endowments will be subject to a 1.4% excise tax. There are a number of online calculators that may help you get a better idea of what the impact of the tax law will be for you or your family for the upcoming year. None are exact and may be wildly different than the actual result. It is always a good idea to consult with a tax professional about your specific situation. Many professionals are still learning what the impacts of this new law will be and will be sharing that information with their clients and customers as the year progresses. This is a brief summary of a very extensive tax reform law and there may be provisions that apply to you that were not discussed in this article. The information contained herein is intended for informational purposes only and is not legal advice, nor is it intended to create an attorney-client relationship. For specific advice regarding a specific issue please contact a tax professional. |
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