Accountants + Business Advisors

Act Fast to Take Advantage of Tax Reform Changes

12.21.17

Act Fast to Take Advantage of Tax Reform Changes

“Act fast to take advantage of tax reform changes: Planning Ideas to Consider before December 31st” by Toby Kaye, CPA | Senior Associate – Tax  

Pay expenses in 2017 that will not be deductible in 2018

  • College athletic seating rights. For example, payment to the college for the right to buy football tickets to your favorite Ohio college football team. The payment to the college is currently treated 80% as charitable deduction, but will not be deductible in 2018.
  • Business entertainment expense. For example, tickets to sporting events. These payments are currently 50% deductible, but will not be deductible in 2018.
  • Real estate taxes. The 2017 Ohio locality real estate taxes are commonly paid in two installments during January and June 2018.  Pay the whole year’s taxes before December 31st to benefit from full deductibility. In 2018, state and local income and real estate tax deduction is limited to $10,000.
  • State and local income taxes. Individuals should consider paying 2017 4th quarter estimates due January 2018 and estimated balances due April 2018 (for 2017 tax year) before December 31st. Businesses should also consider paying 2017 composite taxes on behalf of their owners in 2017. As noted above, deductibility for these state and local taxes are limited starting in 2018.

Pay expenses in 2017 to take advantage of deduction against higher tax rates

  • If your business is on the cash accounting method, pay business expenses in 2017 to benefit from the deduction against higher rate of tax. For example, insurance, utilities, maintenance, etc.
  • Review inventory to determine whether any of the asset is obsolete and should be written off. Review accounts receivable to determine whether they are collectible or should be written off.

Capital expenditures for equipment in 2017 are also eligible for higher bonus depreciation

  • Equipment purchased and put into use after September 27, 2017 are eligible for full deduction in the current year. Prior law permitted only a 50% deduction in first year of use.  A 2018 purchase will still be eligible for a full deduction, but the tax benefit will be less due to the lower tax rates.

Tax reform changes have been released. There are several tax planning ideas you should consider making before December 31st.

Consider deferring certain purchases to get larger deduction in 2018

  • Roofs/HVAC/security systems first place into service in 2018 and later years will be eligible for full deduction in certain circumstances under the new tax law. The cost of these expenditures is depreciated over multiple years if first placed into service prior to December 31, 2017.

Trade in vehicles before 2018 to defer gain

  • Motor vehicles and other business equipment are currently eligible for gain deferral on a sale in exchange for similar property. This gain exemption will be restricted to real estate property starting in 2018.  Consider pushing forward vehicle purchases you were planning in 2018 to 2017 if your trade-in vehicle has a market value substantially above its tax basis.

Roth IRAs

  • If you are about to convert a regular IRA to a Roth IRA, consider postpone your move until next year to recognize the income on conversion at lower rates.
  • If you already converted to a Roth IRA, you have the option to unwind the conversion by recharacterization. i.e. making a trustee-to-trustee transfer back from the Roth to a regular IRA. The option to unwind the conversion of regular IRA to Roth IRA will not exist starting in 2018.

Charitable donations

  • Individual taxpayers may benefit from making charitable donations prior to December 31st or deferring charitable donations to 2018 depending on their specific situation. Please talk with your Apple Growth Partners representative.

Apple Growth Partners will be releasing more analysis on the recently enacted tax reform bill in January focused on the needs of our business owner clients. Stay tuned for more valuable insights. If you have any questions about the new tax bill, please contact your Apple Growth Partners advisor.