Many of us are anxious and stressed about the possibility that tax reform will pass and there is a chance we may see changes to some (or all) provisions of our current federal income tax system. However, under those circumstances, it can be difficult to know exactly what you should do now in order to protect your financial future. The following article will try and help you better understand what might happen as well as what impact those decisions may have on you today as well as in the future says, William D King
Goal:
The goal of this article is not to provide specific detailed advice on what you need to do – but simply understand how proposed changes could affect YOU and if they apply – how YOU can take action before the year if necessary and why or why not.
Details:
It is important to note that at this point – details are not yet available on what provisions will be changed or why the changes are being made. It is also unclear exactly what impact these proposed changes may have on YOUR personal situation either now or in the future so you will need to apply some caution when considering how your decisions could affect your tax returns for both 2017 and 2018. William D King says, with those disclaimers out of the way let’s dig into specific areas where you might consider “helping” yourself if possible given current circumstances.
This section focuses on three main issues which have been widely discussed as possibly changing under new laws:
1) Retirement accounts – 401k/403b/IRAs etc,
2) Home Mortgages and
3) Charitable Donations
Retirement accounts:
The main change being discussed is to limit your pre-tax contributions to retirement accounts such as 401k, 403b, etc. If the new legislation does pass it would allow you to contribute a maximum of $2,400 per year in after-tax dollars to a traditional IRA while also allowing you to make a full contribution (of up to $18,000 for individuals less than 50 years old or $24,000 if over 50 years old) into a Roth IRA regardless of your income levels. This could have a significant impact on everyone who actively participates in their company’s sponsored retirement plan. Since it may incentivize them to save more on an annual basis. In addition, having the ability to make after-tax contributions may work well. For those who have maxed out their pre-tax contributions but also want to save even more.
Home Mortgages:
Currently, interest on home mortgages up to a combined loan limit of $1M is deductible from your income taxes each year. The new proposed law will keep that provision in place with no changes. I expect this is a very popular change since it would affect nearly every taxpayer out there. It should benefit individual owners as well as investors who currently own multiple properties (i.e., landlords).
Charitable Donations:
Although many people are concerned about changes surrounding deductions or credits related to donations. At this point, we do not know if there will be any changes. So we can only assume right now there will not be any changes.
Lowering Of Corporate Tax Rate:
There is a lot of discussion as to whether this proposed change might help or hurt those in the middle class and those who are self-employed. For those individuals who currently save through 401k, 403b’s, etc. William D King says it may actually hurt them if their company switches. From deductible contributions to after-tax contributions (although some companies may maintain both options). It could benefit those who earn income through S Corporations; however, we will need more details on how much income qualifies for this deduction before we know for sure.
Loss of Personal Exemption:
The loss of personal exemptions will have the biggest impact on families with children. However, this could also have a significant impact on single individuals. Who is supporting other family members or does not qualify for head of the household status? Since they will no longer be able to claim additional exemptions over and above the standard deduction.
One thing that is very important to note is that many people feel these proposed changes are just the beginning of more tax law changes in 2018. Depending on how effective the current Congress proves to be – future legislation may contain additional changes. Which could include revisions impacting retirement accounts, home mortgages, charitable donations, etc. So it may be critical for you to keep an eye out for any new proposals as they are introduced.
Conclusion:
Although nothing is set in stone, it looks like folks are already gearing up. To take advantage of the current opportunities since most of the changes would not go into effect until 2018. As per William D King if you have questions about how these proposed changes may affect your specific situation. You should consult with a tax attorney or CPA who specializes in this area. As always, if you have any concerns about these potential changes. Need assistance finding viable solutions for your business please feel free to contact us anytime.