Tax reform has certainly shaped up to be a massive change in our tax code that will keep all of us quite busy for years to come. This means new opportunities and loopholes for your CPAs to start thinking about for you. Although the following analysis may seem lengthy, this is hundreds of pages shorter than the actual new tax code. Before we get into the nuts and bolts of the law, there are a few things you can do before December 31, 2017 and in early 2018 to take advantage of the upcoming rule changes.

Things To Do by December 31, 2017

Things To Do in Early 2018

Overview of Tax Reform

Our opinion of the overall tax reform is that it primarily benefits large corporations by allowing them to receive a 40% tax bracket reduction (from 35% to 21%), which makes them more globally competitive. The idea is for corporations to have an incentive to do business in the U.S., which results in domestic job and wage growth. However, to pay for these tax cuts, some corporate loopholes have been closed, and numerous individual deductions and credits have been curtailed. Of course, some of the tax cuts may end up being financed by additional national debt. On the corporate side, deductibility of debt has been reduced (except for commercial real estate investors and developers), which will raise tax revenue for the government. On the individual side, mortgage debt interest deductibility has also been reduced. Previously, interest on a mortgage up to $1 million was deductible. Homeowners may only deduct interest on the first $750,000 of their mortgages starting in 2018.

The law clearly has both winners and losers. Taxpayers with similar incomes who live in different parts of the country will have different tax outcomes. People in states with higher income taxes, such as NY, CA, NJ, IL, CT, may see a federal tax increase due to the reduction in the deductibility of these state taxes, and a taxpayer with the same income in other states may see a federal tax decrease. Also, certain industries have been favored over others with tax cuts. High capital-intensive businesses, like manufacturing, will get a large tax reduction, but service businesses, such as law, medicine, finance/accounting, consulting, will not get a tax reduction. It is this sort of uneven picking of winners and losers that will create more loopholes and opportunities for taxpayers. To add to the complexity, the majority of the tax reductions and changes for individuals disappear in 2025, but the corporate tax cuts will be permanent.

Individual Tax Reform Highlights and Changes


Business Tax Reform Changes and Highlights:

What Didn’t Change:

We would anticipate more guidance will come from the IRS on the ambiguous areas over the years, but meanwhile CPAs will have a lot of opportunities to help their clients. This was one of the largest tax law changes since the Reagan era and will impact all individual and corporate taxpayers. We suggest you talk to us for help navigating the complex changes and to take advantage of any opportunities these changes will create.

If you would like to discuss wealth planning strategies in order to maximize your tax benefits, we suggest you contact Redwood Wealth Management. They are a fee-only independent advisory firm. Their website is where you may find their contact information.

We wish you a prosperous and healthy new year!

Segars & Vora, CPA's