Some notes on the new tax law and options worth considering:
– The standard deduction has been doubled to $24,000 for married couples ($12,000 for individuals), but the personal exemption is eliminated.
– Miscellaneous itemized deductions that were subject to the 2% floor (e.g., certain unreimbursed employee business expenses, tax related expenses and investment related expenses) are no longer deductible. Therefore, you should consider whether you can accelerate the payment of any of these items that would qualify as miscellaneous itemized deductions by year-end 2017.
– The overall limitation on itemized deductions is eliminated.
– The Alternative Minimum Tax (AMT) for individuals is maintained with a higher exemption level. Additionally, AMT exemption phase-out thresholds are increased. Therefore, given the increased exemption and phase-out thresholds, as well as the limitation of certain itemized deductions, many clients may find that they are no longer subject to AMT. For certain clients who hold incentive stock options (ISOs), they may benefit from exercising those options in years when they do not have AMT liability.
– The deduction for state and local taxes (SALT), including real property taxes, have been limited. Starting in 2018, taxpayers can only deduct $10,000 in the aggregate for property, income and sales tax. The new tax law also explicitly states that taxpayers may not take a deduction in 2017 for prepayment of state or local income tax imposed for taxable years beginning after December 31, 2017. In other words, you cannot prepay your 2018 (or later years) state or local income taxes. However, consider prepaying 2018 real estate taxes, if possible, prior to 12/31/2017. In addition, consider paying unpaid 2017 state or local income taxes prior to 12/31/2017.