On December 22, 2017, the tax reform bill, commonly referred to as the Tax Cuts and Jobs Act of 2017 (the Act), was signed into law, bringing sweeping changes to the U.S. Tax Code. The Act takes effect on January 1, 2018. Some of the changes in the Act are permanent, while others are only temporary. We summarize a few of the most significant changes affecting individual taxpayers, along with a few tax planning considerations still available as we near the end of 2017. Additional guidance on planning opportunities related to particular facets of the Act is forthcoming.

Individual Income Taxes

The Act generally will reduce individual income tax rates, with a new highest tax rate of 37% (down from 39.6%) applicable to taxable income in excess of $600,000 for married filing jointly taxpayers and $500,000 for single taxpayers. The new income tax rates and brackets are detailed below:

The Act will double the standard deduction and eliminate advantages for many taxpayers who itemize deductions. For those taxpayers who continue to itemize, the deduction for mortgage interest will be limited to interest on newly incurred mortgage principal totaling only $750,000. Deductions for state and local property tax, and either income or sales tax, will be subject to an aggregate limit of $10,000. The floor for medical expense deductions will be restored to a more taxpayer-favorable 7.5% of adjusted gross income, though several miscellaneous deductions will no longer be available. Charitable contributions will continue to be deductible, and a more favorable limitation of 60% of taxable income for certain charitable contributions will replace the former 50% limitation. While the alternative minimum tax (AMT) will be retained, the Act makes taxpayer-favorable changes to applicable exemptions and phase-outs.

Individual Gift, Estate and GST Tax

Under current law, the individual lifetime gift and estate tax exclusion—the amount that an individual may transfer free of gift or estate tax, over and above the annual exclusion and other exclusions and deductible transfers—is $5,490,000, indexed annually for inflation. The same amount is available as a generation-skipping transfer tax exemption, commonly known as the amount that may be transferred directly or indirectly to grandchildren or more remote descendants without incurring generation-skipping transfer tax. The Act will effectively double the lifetime gift and estate tax exclusion and the generation-skipping transfer tax exemption to $11,200,000, indexed annually for inflation. For the next few years, taxpayers with estates in excess of the exclusion amount will enjoy significant planning opportunities and should consider how best to use the increased gift exclusion. Under the Act, the gift and estate exclusion will revert back to the inflation-adjusted $5,490,000 in 2025. Look for a future update from us on these opportunities in 2018. Additionally, since some states continue to impose their own separate estate taxes with estate exclusions as low as $1,000,000, residency will continue to be a major consideration for both income and estate tax planning.

Year-End Planning Considerations

While the Act’s effect on you personally will depend on your individual circumstances, there are a number of strategies that you might employ before the end of the year to take advantage of favorable tax breaks that will be reduced or eliminated at the end of 2017 under the Act. Similarly, there may be actions yet available in 2017 to reduce your overall tax liability in light of the changes taking effect on January 1, 2018. Highlights of some of these are below. We encourage you to discuss these measures and others with your income tax advisors before the end of 2017:

• Defer income if your overall tax rate is expected to decrease in 2018, or if you expect to be able to take advantage of a new deduction for income from pass-through entities.
• Accelerate income if your overall tax rate is expected to increase in 2018.
• Initiate a like-kind exchange of personal property (e.g., artwork) if you were considering an exchange next year.
• Accelerate miscellaneous itemized deductions if doing so would not subject you to the AMT, for instance by:
  • prepaying all 2017 (not 2018) estimated state income taxes,
  • prepaying 2018 property taxes (if your local jurisdiction permits),
  • prepaying investment expenses and tax preparation fees,
  • making an early interest payment on your mortgage or home equity loan, or
  • accelerating charitable contributions before the end of 2017 that you might otherwise have made in 2018.

If applicable, we recommend that you consult with your income tax advisors to determine whether there are opportunities that still might be available in 2017 with respect to a business (e.g., deferring billing or accelerating losses) that would provide a tax benefit. We send best wishes for a happy and healthy end to 2017.

[View source.]