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