There are more interesting proposed tax changes for individuals than on the business level. The proposal calls for seven individual tax brackets to be replaced by just three, potentially 12, 25 and 35 percent. It also calls for eliminating the so-called “marriage penalty” and expanding the standard deduction. However, some of these proposed changes could end up hurting some taxpayers more than helping them.
According to the Wolters Kluwer report, the math for some taxpayers under the proposed higher standard deduction vs. taking the current standard deduction plus personal exemptions does not seem to add up well.
“Under the inflation adjusted amounts for 2017, a family of four filing a joint return could claim a standard deduction of $12,700, plus $16,200 for four personal exemptions of $4,050. The result reduces adjusted gross income by $28,900. Under the GOP framework, the standard deduction for married filing jointly is only $24,000 with no exemptions. The result would be that the family’s taxable income would be increased by $4,900 as compared to 2017 inflation adjusted amounts.”
The framework calls for an expansion of the child tax credit. The amount of the credit would increase and be made available to more income groups.
The framework also proposes significant changes to itemized deductions. Nearly all the itemized deductions will be eliminated except for mortgage interest and charitable deductions. Note that property, sales, and income tax deductions are targeted for elimination.
A significant impact on our clients is the proposed concept of capping itemized deductions. President Trump had called for a cap of $100,000 in itemized deductions for single filers up to a $200,000 cap for married filing jointly. People with high out-of-pocket medical expenses (currently amounts beyond 7.5 percent of adjustable gross income), for example, would lose that option to reduce their taxable income. In addition, the opportunity for large charitable contributions and mortgage interest deductions may be impacted. There was also discussion during President Trump’s campaign that all personal exemptions and head-of-household status would be eliminated, but all of these potential deductions are expected to undergo discussion in committee.
Tax Planning Changes for Individuals
My standard guidance to clients is to look at their own individual tax situation and continue to leverage opportunities that range from tax-deferred savings to keeping track of potential itemized deductions. If a major event has occurred or is on the horizon this year, talk to your CPA about its potential tax impact under the current tax code.
Ultimately, consider your business goals and planning for investments or equipment purchases. Consider the current equipment expensing and bonus depreciation rules, the time frame for which your company will need the equipment, and your projected profits when making the decision whether to invest this year or next. The same holds true for estate planning. Planning with the guidance of your trusted advisors keeps you and your family in more control regardless of the next version of federal tax legislation.
As soon as we see some actual legislation from the Hill, there may be more to discuss for you or your company. Think of Cornwell Jackson if you are in need of longer-range planning, reporting support or guidance. And stay tuned!
Continue Reading: Today’s Reform and Tax Planning Predictions
Scott Allen, CPA, joined Cornwell Jackson as a Tax Partner in 2016, bringing his expertise in the Construction and Oil and Gas industries, and 25 years of experience in the accounting field. As the Partner in Charge of the Tax practice at Cornwell Jackson, Scott provides proactive tax planning and tax compliance to all Cornwell Jackson tax clients. Contact him at Scott.Allen@cornwelljackson.com or 972-202-8032.
