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Recent tax legislation update
Saturday, December 09, 2017

Over the past month, there has been two different tax bills passed in the House and the Senate.  Congress is now in a process of "reconciling" these bills (aka making one bill out of both of them).  

In the process of doing so, nothing has really been nailed down, but there are some general themes which have emerged which will probably occur to one degree or another.  I have tried to summarize the most important points here.  Please remember these rules will only apply to 2018 going forward, and so will not affect this tax filing year.  They are as follows: 

A corporate tax cut from 35% to 20-22%.

Other pass-through entities (S corporations, partnerships) will be provided with preferential tax rates to their "passive" investors.  Active owners who work in their businesses will supposedly be barred from taking advantage of these rates, but will most likely receive a tax deduction on their individual tax return of 17-23% of their income from the pass through entity.

Standard deduction will increase substantially; however, personal exemptions will be eliminated BUT child tax credit will be increased

State and local income taxes and property taxes will be limited as a tax deduction.

Medical costs may be limited as a tax deduction.

Mortgage interest may be limited to interest on $500,000 mortgages and below; however, this would only apply to mortgages that began after November 2, 2017 

Only meals will count as entertainment expenses for business purposes

Alimony deduction will be eliminated; however, existing alimony agreements as of this year will remain as tax deductions

Alternative Minimum Tax to be eliminated (trying to do that - it still survived in Senate bill)

As a matter of tax planning, it is hard to definitively recommend actions to take as this tax bill may not even pass and, even if it does, the details of the bill could substantially change from today.  However, it would be a good idea to be prepared to take action should Congress pass a bill before the new year to take advantage of deductions which might go away. 

For example, if you own a home and have the ability to prepay property taxes you might want to prepare to do that if the tax bill passes and they limit the property tax deduction.  Similarly, if you are self-employed, you could pay your January 2018 quarterly payment at the end of this year.
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