It's a New Day for Tax Planning

As everyone knows, on December 22nd, 2017, the most sweeping tax legislation since 1986 was signed into law. The Tax Cuts and Jobs Act (TCJA) makes small reductions to income tax rates for most individual brackets, substantially reduces the income tax rate for corporations, and provides a huge deduction for owners of pass-through entities. However, it is not all good news for taxpayers. The TCJA also eliminates or limits many tax breaks, and most of the tax relief provided is only temporary unless Congress acts to make it permanent. So, how does the TCJA affect you and your business?

1 - Income & Deductions

The income and deduction timing strategies you used in the past no longer make sense. To time income and deductions to your tax advantage in 2018, you must consider the potential impact of TCHA on your particular situation.

New limits are in place for commonly deducted items such as property taxes, mortgage interest, and home equity debt interest.

Dramatic changes to personal exemptions and the standard deduction are worth reviewing. The TCJA suspends person exemptions, but also increases in the child care credit and a new family credit which could offset this depending on your circumstances. Changes to the standard deduction could also help offset for the loss of personal exemptions. The TCJA nearly doubles the standard deduction to $12,000 for single and separate filers, $18,000 for heads of households, and $24,000 for joint filers.

2 - Family & Education

Although the TCJA takes away personal exemptions, it expands tax credits for families during the period, increasing the child credit and adding a new "family" credit for dependents who don't qualify for the child credit. Tax credits reduce your tax bill dollar, so they're particularly valuable. Check out the chart below to know who is eligible for these tax breaks:

3 - Investing

Although time, and not timing, is generally the key to long-term investing success, timing can have a dramatic impact on the tax consequences of investment activities. Under the TCJA, your long-term capital gains rate can be as much as 20 percentage points lower than your ordinary income tax rate. See the chart below for the 2018 capital gain tax rates:

4 - Business

Businesses carry a lighter tax load in 2018. For C corporations, the TCJA replaces graduated rates ranging from 15% to 35% with a flat rate of 21%. For sole proprietors and owners of pass-through entities, it also provides a new deduction. And for all entity types, it enhances many depreciation-related breaks. However, TCJA also reduces or eliminates some tax breaks for businesses.

Two enhancements to pay particular attention to include Section 179 expensing elections and bonus depreciation. Alternatively, some other common tax breaks are eliminated, such as business-related entertainment expenses are no longer deductible. It is critical to work with your tax advisor to determine exactly how your business will be affected so you can plan accordingly.

5 - Tax Rate Charts