AAFCPAs’ Tax Practice Recommends Individual Tax Planning Considerations with Respect to the Tax Cuts and Jobs Act

On Friday, December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (H.R. 1) (the “TCJA”). The final legislation is lengthy and complex, and the AAFCPAs tax practice recommends the following individual tax planning considerations.
As mentioned in a previous blog, the law specifically disallows the strategy of prepaying 2018 state income taxes before December 31, 2017. Prepayment of some property taxes may be advisable for taxpayers not subject to Alternative Minimum Tax.
There are additional rule changes that, depending upon your specific financial and tax situation, may require action before December 31 or otherwise could impact your 2017 tax liability.
Home Equity Indebtedness – Current law allows individuals to deduct the interest on up to $100,000 of home equity borrowings, with no consideration as to how the borrowed funds were used. Interest on such loans will no longer be deductible in 2018. Accordingly, individuals with existing loans who are not subject to Alternative Minimum Tax should consider making their January interest payment prior to December 31.
As a reminder, home equity borrowings used to make improvements or additions to one’s home are treated as “Acquisition” rather than “Home Equity” indebtedness. Accordingly, that interest is not affected by the new law.
Miscellaneous Itemized Deductions – Under current law, a number of expenses attributable to the production of earned investment income (employee business expenses, investment publications, tax preparation, investment advice, union dues, etc.) are allowed as an itemized deduction to the extent that the total exceeds 2% of an individual’s Adjusted Gross Income. Allowable expenses, however, are disallowed for purposes of computing Alternative Minimum Tax. Historically, the combination of the 2% rule and Alternative Minimum Tax has limited the benefit of this deduction for many taxpayers.
These deductions have been eliminated in their entirety for 2018. Accordingly, individuals who have benefited from these deductions in spite of the above-noted limitations may wish to ensure that outstanding bills are paid prior to December 31.
Change in Standard Deduction – Starting in 2018, the standard deduction increases from $6,350 to $12,000 for single individuals, and from $12,700 to $24,000 for married couples. Individuals whose itemized deductions historically fall between the old and new thresholds may wish to accelerate charitable donations normally made in 2018 into 2017. Unlike the deductions for state taxes and miscellaneous itemized deductions, charitable donations are not subject to Alternative Minimum Tax limitations.
Medical Expenses – Under current law, medical expenses are deductible to the extent they exceed 10% of Adjusted Gross Income.
Under the new law, this limitation has been reduced to 7.5%, retroactive to January 1, 2017. Individuals with large uninsured expenses or co-pays should consider bunching such payments before December 31, in light of the expanded Standard Deduction.
Alimony – Under current law, payments designated as alimony are deductible by the payer and includible in the recipient’s income. This treatment is repealed for agreements executed after December 31, 2018. Existing agreements or those executed during 2018 will not be affected by this change, unless they are modified after December 31, 2018.
Moving Expenses – Under current law, certain moving expenses are deductible. Similarly, employer reimbursement of allowable moving expenses by employers is not subject to withholding, as they simply represent amounts that would otherwise be deductible if paid by the individual.
Starting in 2018, the deduction for moving expenses is eliminated. Accordingly, individuals who have incurred but not paid qualifying expenses should do so prior to December 31, 2017.
Note that this rule change does not impact the treatment of employer reimbursements of nonqualifying moving expenses. Such payments have always been treated as W-2 income subject to withholding, and this will continue in 2018.
Roth IRA Conversions – Under current law, an individual may convert an existing traditional IRA into a Roth account, but have the option to reverse that conversion up until the filing date of their tax return. Since conversions are taxed as ordinary income, this allowed an individual making a conversion during 2016 to reverse the tax treatment to a date as late as October 15, 2017. This reversal rule was beneficial in years in which the account decreased in value subsequent to the conversion date.
Such reversals are no longer allowable after December 31, 2017. Accordingly, if an individual wishes to reverse a Roth conversion made during 2017, it must be done prior to December 31, 2017. While the strong stock market performance may not warrant a reversal decision, a review and accompanying decision to reverse a 2017 Roth conversion may be advisable in light of 2018 tax rate reductions.
The Tax Cuts and Jobs Act represents a dramatic overhaul of the U.S. tax code. The tax practice of AAFCPAs will continue to monitor the legislative process and keep you informed as significant changes occur or provisions become clarified. If you have any questions please contact your AAFCPAs partner, or Richard Weiner, CPA, MST at 774.512.4078, rweiner@nullaafcpa.com.

About the Authors

David McManus CPA
Dave leads AAFCPAs’ Cannabis Business Practice, providing highly coveted tax, entity structure, and business advisory solutions.  Dave has been deeply immersed in understanding the complex financial and operational nuances of the cannabis industry since 2012. He advises multi-state operators, recreational and medical retailers, cultivators, product manufacturers, and investors. He proactively advises clients on risks, opportunities, and tax implications related to market entry, accounting methods, capital structure, debt financing, R&D, M&A, and goodwill impairment. He has led industry training sessions on interpreting and implementing new federal and state marijuana statutes, including compliance with 280E. Dave maintains a strong network of cannabis industry investors, attorneys, bankers, employee compensation and benefits providers, realtors, risk managers, and insurance agents, and he leverages these resources as appropriate to help clients achieve success.
Joshua England, Tax Attorney
Josh is a tax strategist with extensive expertise advising high-net-worth individuals, nonprofits, and business owners and investors on effective strategies to ensure tax efficiency, asset protection, well-executed succession plans, and wealth preservation. He has been practicing law since 2000 and focuses his practice on the areas of wealth transfer planning, fiduciary and individual taxation, business structuring to maximize tax efficiency, and advising tax-exempt organizations, foundations and charitable donors.
Rich has over 30 years of broad tax experience with a specialty in tax planning and consulting for private and publicly-held businesses. Rich has specific expertise in the Software, Bio-Technology, Medical Device, Life Science, Manufacturing, Retail, Professional Service and Publishing industries, as well as U.S. aspects of international taxation. He works extensively with European companies expanding into the U.S. market. Additional areas of focus include companies and stockholders in transition, including structuring of and planning for Mergers & Acquisitions, planning for changes in ownership and management, and adoption of tax methodologies with a view toward the long term. He is well known in his field and is a frequent speaker on a variety of tax related topics.