Tips on How to Handle Some of the Tax Reform Provisions

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As the House and Senate reconcile their versions of the tax reform bill, there are certain provisions that warrant the attention of accountants and taxpayers alike.

AccountingWEB presented some questions to Gary DuBoff, principal in the Tax and Accounting Department at MBAF — a top 40 public accounting firm — on how to tackle the changes, should they go into effect. He offered his perspective on some of the important elements of the bill: whether to make donations by the end of this year to take advantage of deductions, understanding how federal tax reform will affect state tax changes, paying state taxes in advance, and what to do with investments.

AW: Why should charitable contributions be made before the end of the year, and how should they be made?

DuBoff: With the pending tax legislation in Congress, there are number of reasons why accelerating your 2018 charitable donations before the end of 2017 may make sense.

  1. In general, charitable donations before the end of the year will be deductible when paid. Making cash donations via credit card may ease the pain of having to write an actual check in 2017, and can be paid after the end of the year in 2018, with your credit card balance due. 
  2. Of course, using long-term appreciated securities is a much more tax efficient way to make your contribution as opposed to cash, since you will avoid having to pay tax on the appreciation and the deductible gift value will be deemed to be the FMV [fair market value] of the security on the date of the gift.

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About Dominic Diongson

Dominic Diongson

Dominic is Deputy Editor of AccountingWEB

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By BradD15
Dec 12th 2017 17:55

My question is, why aren't state taxes deductible? I feel like this is a huge part of the tax reform that I disagree with. I'm not really understanding why they are changing this. Can you elaborate?

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to BradD15
Dec 16th 2017 15:00

The following is an emailed response from Gary DuBoff:

JCT asserts, "in conjunction with an increased standard deduction and lower overall tax rates, the provision" arguably "simplifies the tax laws for taxpayers who currently claim itemized deductions for state and local taxes. "

According to JCT, "the provision would eliminate a tax benefit that effectively subsidizes higher state and local taxes and increased spending at the state and local level." However, the bill only seeks to eliminate the individual deduction for state and local income taxes — the provision does not affect the corporate deductions for state and local income taxes. Arguably, a similar policy assertion could be made that corporate tax payments to state and local governments "effectively subsidize" higher state and local taxes and increased spending at the state and local level.

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