01 Mar TCJA: Surviving the New Tax Law
Unless you have been on another planet or in the witness protection program, you have heard by now that there is a new tax law, effective January 1, 2018. Along with this law, there are a series of sweeping changes, too many to go into here, so instead I am offering a common-sense survival guide.
- Know how it impacts you – This is what CPA’s do, they demystify the complex, explain the unexplainable, and project the past into the future. The advantage of knowing how it impacts you as soon as possible before the end of the year is that you can make changes to withholdings, estimate amounts, cash flow needs, critical decisions if you own a business, have a family, etc. Don’t let it catch you by surprise.
- Don’t get hung up on the calculation of the tax – The talking heads in the media get paid to recite the words in the teleprompter, without any understanding of what they are saying. Unfortunately, sometimes they alarm people unnecessarily. Yes, exemptions have gone away; state and local taxes (SALT) have been limited, and unreimbursed employee expenses are no longer deductible, but no one talks about AMT virtually disappearing, or tax rates going down. We should look for fairness in assessing impacts. It helps to know #1 above.
- See your tax advisor earlier than you ever have – If you are used to seeing your tax professional in March, you need to plan to make it November; if you typically see him/her in December, you need to advance it to August, and so on. Timely analysis of your opportunities will save you money, especially if you are in business or have a pass-through entity.
- Section 199 = 20% – Remember this equation, if you know nothing else about TCJA. If you qualify, under this code section you could get up to 20% deduction on the net profits of your business, whether incorporated or not.
- To C or not to C – If you are incorporated, your tax pro should evaluate the pros and cons of switching from S to C or C to S. If you are not incorporated, you should evaluate if it is worthwhile doing so.
- Don’t suffer in silence – This law is complex and has many obscure provisions. This is not the time to be a do-it-yourselfer. Get help.