Think about 2018 Taxes Now!

We’ve had a lot of questions from clients about the impact of the Tax Cuts and Jobs act on normal, working Americans. IRS did a clumsy job with implementation, although in their defense the TCJA probably raised more questions than it answered. Also, one of the most surprising effects will be felt by taxpayers who live in high tax jurisdictions and who itemize their deductions.

A combination of factors may mean a higher bill.

Three things are conspiring against us to create a perfect storm of annoyance and large tax payments.

  • First, IRS came out with new withholding tables that may have significantly under-withheld for a large part of 2018. The General Accounting Office says this snafu will have an impact on approximately 73{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of US taxpayers.
  • Second, Oregon is a jurisdiction with a relatively high personal income tax rate. In 2018, you can only deduct $10,000 state tax (income plus property) on your income tax return if you itemize. So, if you pay $8,000 in state income tax and have $5,000 in property taxes, you can’t deduct the full $13,000 on your Federal schedule A. You can only deduct $10,000.
  • Finally, many of us did not adjust our exemptions on Form W-9 after the TCJA passed. While some folks will not be itemizing their deductions this year, due to the increase in the standard deduction, the combination of the first two factors may mean that you have a stiff bill to pay on April 15 (and not a moment sooner!!!!!).

We also wanted to encourage folks to reach out to their CPA early this year. Get your organizers completed and shoe box of receipts assembled early and to your tax preparer. We have heard from our friends who prepare personal income tax returns that the complexity of the 2018 tax season will mean that some shops don’t have enough people to do the work. If you wait too long, you may end up doing your return yourself! (I may be the only one out there who finds that entertaining).

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

Tax Reform Now: Five Actions to Consider Before December 31, 2017

Tax and Business

Congress officially passed the Tax Cuts and Jobs Act on December 20th. Despite conflicting reports on when President Trump will sign the Act, he will sign it. Here are five last-minute actions you should consider for tax planning before the New Year to minimize your 2017 and 2018 tax liability.

One: Make Your Oregon Fourth Quarter Estimated Tax Payment by December 31st

Individuals who pay quarterly state income taxes should consider making their fourth quarter payment by December 31st. The Act limits the deduction for state and local taxes to $10,000 unless the taxes are paid and accrued in carrying on a trade or business.  In Oregon, the fourth quarter estimated payment is due on January 16, 2018. Paying by December 31st assures that these individuals can maximize their 2017 state and local tax deduction one last time. Strongly consider this action if you receive substantial investment income or are self-employed. The final version of the Act only allows a deduction for payments made for tax years on or before 2017, so do not make an estimated payment for 2018 taxes.

Two: Give More to Your Favorite Charities

Give and you shall receive . . . more in 2017 than 2018. For itemizing taxpayers, charitable contributions are one of the most well-known and utilized deductions. The Act’s decease to the marginal tax rates and the doubling of the standard deduction means a charitable deduction claimed on a 2017 tax return will yield more tax savings than the identical deduction on future tax returns. If you expect your marginal tax rate to decrease, or if you itemize now but might not under the new law, consider talking to your tax advisor about how some last minute giving could be the best gift you receive this holiday season. If you do not have a charity in mind, consider donating to Oregon’s Campaign for Equal Justice, whose mission is to make equal access to justice a reality for all Oregonians.

Three: Pay Your Local Property Taxes in Full for 2017-2018

Starting in 2018, individuals will not be able deduct more than $10,000 of their state and local income taxes and their local property taxes. While Oregon allows property taxes to be paid in installments, to be assured an individual can deduct the maximum amount of property taxes paid for the 2017-2018 year, consider writing a check for the installments due in 2018 to your county before the year end. Check with your tax advisor if you are subject to the AMT. The AMT limits the amount of the property tax deduction.

Four:  Pay and Claim Those Unreimbursed Employee Expenses and Other Miscellaneous Deductions Now – Including Your Tax Preparation Fees and Certain Legal Fees

As of 2018, miscellaneous itemized deductions will become a deduction of the past. This includes the deduction for tax preparation expenses, certain legal fees, and unreimbursed employment expenses. Unreimbursed employment expenses can include everything from tools & supplies, union dues, expenses for work related travel, subscriptions to business journals, attending seminars and more. If you expect to pay these expenses next year you should consider paying for them before December 31st. Of course, if you are self-employed or own a business, you will still be able to deduct some of these expenses against business income under the new law. In short: Consider paying your CPA for 2017 tax advice and your 2017 tax filing by December 31st.

Five: Delay That Taxable Gift

Taxpayers considering gifts that would result in the payment of gift taxes or GST may want to wait until 2018. The exemptions for both double in 2018 and a delay in the timing of the gift could reduce or eliminate any tax liability incurred. However, do not hesitate to make that 2017 annual exclusion gift!

Stay Tuned

This article is the first in a series planned to address the numerous changes to tax law imposed by the Tax Cuts and Jobs Act. We strongly recommend you consult with your tax attorneys and tax advisors on the impact of the act on your 2017 taxes and to plan for future years.

Caitlin M. Wong brings her passion for tax law and her commitment to empowering others to her practice at Samuels Yoelin Kantor LLP. Caitlin has experience with all aspects of both federal and state taxation, including tax planning for companies as well as individuals, audits, appeals, tax court litigation, estate planning and trust and estate litigation.