10 Steps to Take Now to Minimize Taxes under the New Tax Law
The overhaul of the Internal Revenue Code was passed by Congress on December 21, 2017 and signed into law by the President. Many changes become effective January 1, 2018. Although 2017 is almost over, the following are some actions to consider taking now to potentially save taxes.
Before the end of 2017 consider taking the following actions:
- Pay 2017 state and local income taxes in 2017.
- Purchase large items that are subject to sales tax. Only make these purchases if this does not create Alternative Minimum Tax (“AMT”) liability.
- Pay property taxes in 2017, if you are not subject to AMT.
- Make charitable donations.
- Start like-kind exchanges of personal property or investment property (other than real estate).
- Pay tax preparation, investment advisory, legal and accounting fees for tax planning in 2017. They will not be deductible in 2018.
There are also changes that will be effective in 2018 and should be reviewed at the beginning of 2018 to ensure adequate planning time.
In 2018, review the following:
- Review existing estate plan. Consider revising any estate plan that may use formulas for estate tax planning. The exclusion for estate tax per person increases from $5,490,000 under current law to $11,200,000. This change is only through 2024 and sunsets in 2025.
- Consider additional gifting as the lifetime exclusion per person for gifting increases significantly from $5,490,000 under current law to $11,200,000. This change is only through 2024 and also sunsets in 2025.
- Mortgage interest expenses will be limited in 2018. Consider restructuring home mortgages to fall with the limitation of deducting interest for mortgages up to $750,000. Interest on home equity credit lines will no longer be deductible.
- Closely held businesses and pass-through entities receive some short-term taxation relief. Review the structure of business entities to take advantage of 21% flat tax rate for C corporation, the temporary 100% capital expense rules and deduction election for certain individuals operating businesses through pass-through entities.
This is a short list of possible action items. We will continue to provide more information about the new tax law as well as planning guidance.
About the author: Beth S. Cohn is a shareholder at the Phoenix law firm of Jaburg Wilk. She chairs the business law department and assists clients with estate and business planning. She is a State Bar of Arizona certified tax specialist and a CPA.