Description: Derek Northup covers a couple of items that you should be paying attention to ahead of next years tax season.

Now’s a Good Time to Start Thinking about Next Year’s Taxes

Derek Northup, CPA

April 2018

 

Taxes are never anyone’s favorite subject, but between recent developments related to tax reform and the ushering in of the 2018 tax season, they’ve been in the news quite a bit. While you may be trying to avoid thinking about next year’s taxes until you get through this year’s, now is the time to start digesting and acting upon the changes in the tax law.

 

Here are a few things you should be paying attention to ahead of next year’s tax season.

 

The new AMT: One of the most important pieces of the tax law was the repealing of the alternative minimum tax (AMT) for businesses1, but not for individuals. At least, not officially. Under the new bill, AMT will not be a concern for a large number of Americans it used to impact due to other changes in the tax code.

 

For example, state and local deductions (property, income and others) are now limited to $10,0002, and the 2 percent floor on miscellaneous itemized deductions3 has essentially been wiped out. At first glance, this seems like a bad thing, since you’re losing out on deductions and increasing your taxable income. However, these deductions are probably what caused you to be thrown into AMT territory and were added back to calculate it – meaning that without them, you’ll likely be in the clear from dealing with AMT. In the end, this set of rules will mostly work out to be neutral in terms of cost to you.

 

The trust exception: While expenses such as investment management fees, tax preparation fees and unreimbursed business expenses will no longer qualify as itemized deductions for individuals, this rule does not apply in the case of trusts4. These expenses are still deductible as they are related to a trust, just as they were before the new tax law.

 

If you have a trust, but your investment income flows through you as an individual instead, you may want to adjust so that your income flows through the trust, since it is still able to deduct and pay for its own investment management and tax preparation fees in a way that individuals are no longer able to. To reap the greatest benefit, consider doing this sooner rather than later in the year.

 

The lingering confusion: Despite certain portions of the tax law being clearly outlined, much of it is still in a transient state, meaning you may want to keep checking in on it – and your finances – throughout the year to ensure you’re keeping up with the best tax strategy.

 

Lawmakers acknowledged the loose nature of their plan when they first passed it, admitting that some holes needed to be filled. While there is no specific timeline for that to happen, it will likely be over the summer or fall. However, it’s also possible the law will continue to add fixes after the 2019 tax deadline, since this will expose different methods CPAs and others use to reap benefits the government did not intend.

 

Looking to 2019: While the law’s full effect won’t be felt until next tax season, its rules apply to this year and you need to strategize as such. Talk to your CPA and investment advisor about your personal tax planning strategy and continue to pay attention to the various tax fixes that might come up throughout the year.

 

Sources:

 

1 foxbusiness.com/markets/why-2017-might-be-the-last-year-you-owe-amt

2 washingtonexaminer.com/final-tax-bill-allows-deduction-for-state-local-income-and-sales-taxes-kevin-brady-says/article/2643507

3 accountingtoday.com/opinion/some-truths-about-the-tax-cuts-and-jobs-act

4 chapman.com/insights-publications-Trustees_Deductible_Fees_Tax_Bill_Trusts_Estates.html

 

PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS. Information and opinions provided herein reflect the views of the author as of the publication date of this article. Such views and opinions are subject to change at any point and without notice. Some of the information provided herein was obtained from third-party sources believed to be reliable but such information is not guaranteed to be accurate. In addition, the links provided within are for convenience only and the provision of the links does not imply any sponsorship, endorsement, or approval of any of the content. We do not guarantee the content or its accuracy and completeness. The content is being provided for informational purposes only, and nothing within is, or is intended to constitute, investment, tax, or legal advice or a recommendation to buy or sell any types of securities or investments. The author has not taken into account the investment objectives, financial situation, or particular needs of any individual investor. Any forward-looking statements or forecasts are based on assumptions only, and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Any assumptions and projections displayed are estimates, hypothetical in nature, and meant to serve solely as a guideline. No investment decision should be made based solely on any information provided herein and the author is not responsible for the consequences of any decisions or actions taken as a result of information provided in this publication. There is a risk of loss from an investment in securities, including the risk of total loss of principal, which an investor will need to be prepared to bear. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Exencial Wealth Advisors, LLC (“EWA”) is an investment adviser registered with the Securities & Exchange Commission (SEC). However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. EWA may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. Complete information about our services and fees is contained in our Form ADV Part 2A (Disclosure Brochure), a copy of which can be obtained at www.adviserinfo.sec.gov or by calling us at 888-478-1971


About the author

4054781971

DNorthup@exencialwealth.com

Oklahoma City, Ok

CFO/Tax Director

Derek Northup and his team work directly with Exencial's account managers and clients managing all tax related issues and providing best in class service. Derek has been a CPA practicing at loca... CLICK HERE TO READ MORE