2017 saw several changes to the U.S. tax code, not the least of which was federal tax reform. Even though none of these changes will affect you this tax season, new tax regulations are in effect now and will affect you for quarterly estimated payments in 2018 and beyond. Now is the time to understand the impact of these changes so you can be prepared for what lies ahead.
As we mentioned, the Tax Cuts and Jobs Act was probably the most significant development in tax news in 2017. The legislation made sweeping changes to tax brackets, deduction allowances, and the corporate tax code. Most people will see a short-term effect of this change in their February paychecks, as adjustments to withholding will be made.
Individuals should look at their adjusted gross income under the new tax brackets to see if their taxes will change – and if so, adjust accordingly. Take into consideration higher child and dependent credits, fewer deductions, and the repeal of the individual mandate. If you’re selling or purchasing a home in 2018, there are implications for home-related deductions and credits to think about. There are also changes to estate and gift planning, and the change in state and local sales tax deductions have bigger implications for people living in high tax states.
Business owners, especially owners of pass-through entities, can look forward to a lower top-tier tax corporate tax rate of 21 percent, expanded rules for bonus depreciation and Sec. 179 expensing, the new 20 percent business income deduction, and the option to use a simplified accounting method for businesses with up to $25 million in gross receipts. However, there are new limitations on interest deduction and other deductions. Business owners may re-evaluate their entity selection and passive versus active business income to take advantage of new tax laws.
There are also new partnership audit rules as of January 1, 2018. Partnerships will need to review their agreements to address the changes; smaller partnerships can elect out of these new provisions.
The Affordable Care Act was not repealed, but the individual mandate was. This means there is less of an incentive for younger or healthier people to purchase healthcare from the federal marketplace, which could drive up costs for those who are enrolled. What actually happens remains to be seen.
The IRS (and the Department of the Treasury) faced regulatory scrutiny in 2017, but with increased budget restrictions and tax reform to implement, the IRS will be stretched thin yet again. Despite the struggle to manage fewer resources, the IRS will be looking closer at taxpayers in the “gig” or sharing economy. Entrepreneurs and sole proprietors should expect to provide clear documentation for business expenses.
Tax fraud is on the rise. Scammers are turning to calls and e-mails and posing as imposter IRS agents who demand immediate payment of so-called back taxes or penalties. Hackers are gaining access to tax preparers’ databases, and identity theft is still a huge threat. As taxpayers, file early, and request a PTIN (personal tax identification number). As tax preparers, maintain high levels of security through firewalls, data encryption, and secure passwords to protect clients’ personal data.
This is a brief, high-level overview of the major tax and tax-related developments from 2017. For questions on how these or other changes will impact you, your family, or your business, schedule an appointment with one of our CPAs today.