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The Tax Cuts & Jobs Act | Summary & Comments

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Yesterday, The Congress and Senate passed the historic Tax Cuts & Job Act of 2017.  Before the holiday “break” between Christmas and New Years, I wanted to provide you with a quick reference and summary of the major changes as well as a couple of examples of their impact.
First, you can view the summary of major changes provided by the National Association of Tax Professionals below:

Tax Cuts and Jobs Act 2017

In analyzing the final tax rates I used my personal tax return for 2016 to compare the changes.  While I lost $6,299 in total exemptions and itemized deductions, I actually would have received a tax break of $2,240.  I’m very happy that I can expect a similar result in 2018.  On the other hand, I took a return from a taxpayer with more income than me, a child and much higher mortgage interest and real estate taxes and the results weren’t as good.  For that household, their overall tax increased by $3,246.65 and they lost $22,206 of deductions with the updated tax rules.
At the end of the day, it does appear that the vast majority of middle America will benefit from the new act.
What this also says to me is that, the government has decided to curb the incentive to purchase homes through subsidies and itemized deductions.  Based on the pace of real estate appreciation, especially in major urban areas, there is some logic to this.  Chasing homes or any asset through tax subsidies inflates the value of the asset that an act of Congress can deflate.

Moral of the story? Those with little debt, living in affordable cities will emerge as huge winners.  

Is there such a thing as a “tax benefit”?  NO! Precisely for the reasons mentioned above.  I receive calls often to give advice on making purchases based on the “tax benefit.”

There is no such thing as a “tax benefit”, it is an oxymoron! 

You have to spend $1 today to defer $.25.  The real question should be one you can answer yourself:  Can I really afford this?  Whether it’s a home, car or anything, if you need to stretch your budget with a tax incentive, the answer is, you cannot afford it.  And, there is no guarantee any tax sweetener will last forever as we’re seeing now with the new Tax Cuts & Jobs Act of 2017 and if that incentive is wiped out by an act of Congress where will that leave you?
In any case, as you can see, I enjoy tax theory but there is always the practical minded client that will ask me and say, “okay Ted, what can I do right now to save a few dollars?”  So the answer to that, right now, is you can pre-pay your real estate taxes for 2018 if you think you will exceed the $10,000 in combined state, local and property tax deductions, which most homeowners in Illinois will be able to do.
The problem is that in Cook county, only 50% of the next years tax is allowed to be pre-paid and you have to file a special form to do that.  You have to check county by county for it’s specific rules and given they just jammed the legislation through at the end of the year, I’m not sure how easy or practical it will be to accomplish.
I do not advise doing this because you really don’t know what your income will look like for 2018 anyway.  You can assume but can never plan.
I welcome your questions.

2017 Tax Cuts & Jobs Act

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As the House and Senate debate the details of the proposed Tax Cuts & Jobs Act, I thought I would share some of the main proposals where there is some mutual agreement.

Here is a link to a summary of the proposals:
2017TaxCutsJobsAct-HouseVSenate

There is a lot of debate about who these changes will help the most and it’s very clear it will indeed help lower wage income earners who don’t itemize and some middle and upper income earners who will avoid AMT, however, if the SALT (state and local income tax) deductions are fully repealed it will penalize home owners who exceed the proposed new standard deduction.

Of other significance, the personal exemptions have been repealed and even with the more favorable rates and an increased standard deduction, families with children and income greater than $230,000 will begin lose the increased child tax credit thus negatively impacting their taxes.

Here is a link to a summary of the Tax Cuts & Jobs Act.
tax_cuts_and_jobs_act_section_by_section_hr1

Don’t hesitate to reach out to us and to see how this historic act will impact you.

IRS says 2017 tax season starts January 23

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WASHINGTON, D.C. (DECEMBER 9, 2016)
BY MICHAEL COHN
The Internal Revenue Service said Friday that next tax season will begin on Monday, Jan. 23, 2017, while warning some taxpayers to expect longer waits for their tax refunds. The tax day deadline will be April 18.

John Koskinen

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The IRS said it would start accepting electronic tax returns on January 23 and it anticipates more than 153 million individual tax returns to be filed next year. The IRS believes more than four out of five tax returns will be prepared electronically using tax preparation software, as was the case last year.

However, even with the January 23 start date, the IRS also pointed out that many software companies and tax professionals will begin accepting tax returns before that date and then they’ll submit the returns when the IRS’s systems open. The IRS will also start processing paper tax returns on January 23. The IRS noted there is no advantage to filing tax returns on paper in early January instead of waiting until January 23 for the IRS to begin accepting e-filed returns.

The IRS also reminded taxpayers that a new law will require the agency to hold back tax refunds claiming the Earned Income Tax Credit and the Additional Child Tax Credit until February 15. The IRS wishes taxpayers to be aware it will take several days for these tax refunds to be released and processed through financial institutions. Factoring in weekends and the President’s Day holiday, the IRS is warning many affected taxpayers may not have actual access to their tax refunds until the week of February 27.

“For this tax season, it’s more important than ever for taxpayers to plan ahead,” IRS Commissioner John Koskinen said in a statement. “People should make sure they have their year-end tax statements in hand, and we encourage people to file as they normally would, including those claiming the credits affected by the refund delay. Even with these significant changes, IRS employees and the entire tax community will be working hard to make this a smooth filing season for taxpayers.”

The IRS also reminded taxpayers to hold onto copies of their prior-year tax returns for at least three years. Taxpayers who are changing the tax software products they use this filing season will need to get their adjusted gross income from their 2015 tax return in order to file electronically. The Electronic Filing Pin is no longer an option. Taxpayers can visit IRS.Gov/GetReady to get more advice on preparing to file their 2016 tax return.

The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, instead of the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday, April 17. However, Emancipation Day—a legal holiday in the District of Columbia—will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

“The opening of filing season reflects months and months of work by IRS employees,” Koskinen said. “This year, we had a number of important legislative changes to program into our systems, including the EITC refund date, as well as dealing with resource limitations. Our systems require extensive programming and testing beforehand to ensure we’re ready to accept and process more than 150 million returns.”

The IRS noted that it has been working in partnership with the tax industry and state revenue departments as part of its Security Summit initiative to strengthen tax processing systems to protect taxpayers from identity theft and tax refund fraud. Several new provisions are being added in 2017 to expand on the progress made this past year.

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