Dear Clients, Friends and Colleagues;
Happy New Year! I hope your 2017 was healthy, happy and prosperous! Mine ended with a bang! The first tax reform in three decades was pretty exciting for a tax geek like myself. The Tax Cuts and Jobs Act presents some great opportunities for tax savings, but also a few potential negatives. More than ever, I think it will be important at some point this year for us to sit down and plan a comprehensive tax strategy to take advantage of everything the Act allows. For almost every one of my clients, there will be an opportunity to save money, in some cases a lot of money, on tax going forward. As this is implemented, keep an eye out on my blog at www.mccormicktaxgroup.com as I will be commenting weekly on the new law.
The new law is extensive, but at its base, it reduces the tax brackets for most taxpayers, which along with many of the new deductions, will reduce your tax bill. While the Act is prospective for tax years 2018 forward, we will see the benefits of the new rates in the next week or so as the amount of tax withheld from your paychecks will go down to reflect the new rates. I outlined the Act in bullet point form on my blog, but I thought it bears repeating here:
- The new tax rates start at 12% and go up as follows: 22%, 24%, 32%, 35%, and the top marginal rate for high income taxpayers is now down to 37% for incomes over $500,000 for single taxpayers and $600,000 for married taxpayers.
- Corporate tax rates have been cut across the board to 21%, down from 35%.
- The corporate Alternative Minimum tax has been eliminated.
- The Alternative Minimum tax that impacts individuals has been revised to include increased exemption amounts that will hopefully eliminate its application to many taxpayers.
- The standard deduction for individuals has increased significantly to $12,000 for single taxpayers and $24,000 for married taxpayers.
- The mortgage interest deduction for new mortgage debt will be truncated on debt over $750,000.
- The deduction for state and local income tax payments and real estate tax payments will be capped at $10,000.
- Deductions for charitable contributions remains unchanged.
- The penalty under Obamacare for failing to have insurance has been eliminated.
- The benefits of section 529 plans, formally used exclusively for college expenses, is now expanded to include K-12 education expenses.
- The child care credit has doubled to $2,000.
- The threshold at which medical expenses can be deducted has been decreased to 7.5% (for tax years 2017 and 2018) allowing for more deductions for medical care.
- There is a new 20% deduction on income from pass-through entities like LLC’s and S-Corporations. There are a ton of restrictions on this one so good planning is essential here.
- The deduction for court ordered alimony is now eliminated in the new Act.
Believe it or not, this is just the tip of the iceberg! There are many more targeted deductions that may provide additional tax relief, but some of those can bore you to tears if I haven’t done so already. The bottom line is, let’s talk and make sure you are taking advantage of all aspects of the new law!
As for the 2017 tax season, there are not a lot of big changes. Some of my old tried and true tax saving measures will reduce your effective tax rate and help you keep more of what you make. I am continuing to monitor national audit statistics and am happy to report that audit risk continues to go down. By applying these macro statistics to my tax planning strategies, I am able to save you money on your returns while seriously mitigating audit risk. We put our detailed knowledge of tax law and our audit analytics to work for you. I know I am repeating myself, but I am so honored to work for the best clients in the world! Our firm motto is “seeing value beyond tax” and ensuring your success, at least from a tax standpoint, is a big part of that vision. I have a terrific team ready to jump into the 2017 tax return year. Thank you very much for your business!
Very Truly Yours,
MCCORMICK TAX GROUP LLC
Michael T. McCormick