To borrow an old proverb from the farming community, it’s time for tax practitioners to “make hay while the sun shines.”
What’s responsible for the favorable climate? The answer: the Tax Cuts and Jobs Act (TCJA). This monumental new tax legislation, which was enacted late in 2017, opens up numerous new tax-saving opportunities for both individuals and businesses at the end of this year, but it also creates potential pitfalls for the unwary.
By informing clients about the changes and devising strategies that maximize tax benefits under the TCJA, you can strengthen existing relationships and develop new ones. And this can lead to an unprecedented boost in revenue for your firm.
The new law itself is almost 1,100 pages long, not to mention the reams of regulations that will follow. Due to the level of complexity, your clients will likely need your guidance now more than ever before.
Notably, many clients who have traditionally used your services sporadically, perhaps only at tax return time and for occasional year-end planning, may be "wanting more" from your firm. This represents an opportunity to display the full range of year-round services you can provide.
Most new law provisions affecting individual clients take effect in 2018 but are then scheduled to “sunset” after 2025. Thus, barring any other new legislative developments, there is an eight-year window of opportunity to capitalize on some of the rules. The provisions that apply to businesses generally are permanent, but, of course, Congress could modify the tax law again soon, and it probably will.
This list isn’t complete by any means, but here are several key changes you may want to focus on:
Tax rates for individuals are reduced, and bracket ranges are adjusted. The top tax rate of 39.6 percent is lowered to 37 percent.
Personal exemptions, including those for dependents, are eliminated, but this is offset for some families by an increase in the Child Tax Credit (CTC).
The standard deduction is essentially doubled to $12,000 for single filers and $24,000 for joint filers. When you combine this with other changes for itemized deductions, many clients will no longer be itemizing.
Certain deductions are modified. Notably, the deduction for state and local tax (SALT) payments is limited to $10,000, and mortgage interest deductions are downsized for some taxpayers. There’s also a temporary reduction in the threshold for deducting medical expenses.
Other deductions are suspended until 2026. This includes write-offs for casualty losses (except for disaster-area losses), moving expenses (except for military personnel) and miscellaneous expenses. Alimony deductions are eliminated after 2018.
The rules for like-kind exchanges other than real estate transactions are eliminated.
The tax benefits for Section 529 plans are expanded, including tax-free withdrawals of up to $10,000 a year used to pay for K-12 tuition.
The ability to recharacterize Roth IRA conversions is eliminated.
The estate tax exemption is doubled from $5 million to $10 million with inflation indexing. (It is $11.18 million in 2018.)
The graduated rate corporate tax structure is replaced with a flat 21 percent rate. Previously, the top rate was 35 percent.
The Section 179 allowance is doubled from $500,000 to $1 million, and bonus depreciation is enhanced before gradually being phased out.
A new deduction of up to 20 percent of qualified business income (QBI) is created for pass-through entities, including sole proprietorships. But the deduction is phased out for certain high-income taxpayers.
Deductions for business entertainment, meal expenses and transportation fringe benefits are eliminated.
A business can claim a new credit for wages paid to employees on qualified family leave. This provision expires after 2019.
More small businesses can use the simplified cash accounting method.
The tax breaks (and brakes) don’t stop there. As you might imagine, the impact of TCJA for individuals and businesses could be seismic.
What about your firm? You can’t allow this literally “once-in-a-lifetime” opportunity to pass you by. It can give your practice an unparalleled income-generating boost. Accordingly, this series will be devoted to examining ways you can help your clients and how to profit from those efforts. Prepare to reap the rewards.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...