Note from the author, one day after the initial publication of this post.
It’s pretty funny. My Democrat friends ripped me for not condemning the evil tax reform. My Republican friends ripped me for not cheering President Trump loudly. And I was simply trying to share facts about taxes. Welcome to 2018.
So, the Trump tax reform has arrived. There was a lot of anxiety as the proposals were taking shape. As I predicted in my earlier (and now irrelevant) post, the end result is totally different, and there was no need to overreact and panic.
Sadly, the information about preliminary proposals and the final bill is all mixed up, so nobody knows for sure what to believe anymore. I will be writing about the tax reform in detail soon, but meanwhile here is a very basic overview.
Trump campaign promises v. reality
- Major simplification of the tax code? To some degree, for families with straightforward financials.
- Major tax breaks for the middle class? Not even close.
- Major tax breaks for corporations? Absolutely. Big business is the big winner.
- Major tax breaks for small businesses? Depends on what you consider major, but certainly some.
- Obamacare repeal? Not exactly a repeal, but pretty close to it.
False alarms: things that did NOT happen
“Investors won’t be able to deduct property taxes and mortgage interest”
Whoever started this panic was way off. It never was a threat for investors. The new rules had to do with personal residences, not with investment properties.
“Capital gain exclusion on personal homes will become 5 out of 8 years”
Nope. No changes. Still 2 out of 5 years.
“Rental income will become subject to self-employment tax”
Nope again. Still excluded from this pesky tax. Breathe.
“Cash-flowing landlords will not have the tax benefits of other businesses”
Another bullet dodged. Landlords are included, too.
“1031 exchanges will disappear”
Nope. You can still exchange. There are some new rules, but the basics of 1031s are intact.
“Everyone will need to convert to C-corporations”
Not everyone for sure. Some highly profitable businesses – possibly.
“Everyone will need to create LLCs and S-corporations for 2018”
As of today – no new reasons to. But stay tuned on this one.
What should be done before 2017 is over?
Because most of the troublesome preliminary provisions are dead, so are the suggestion to prepare for them. The urgency level for the end of 2017 is moderate, no more than usual.
Please make sure to re-read my old but still relevant posts about Tax planning in December and specifically about Paying property taxes in December. These principles and suggestions still work.
Today, I’m only bringing up new considerations, specifically caused by the Trump reform.
Pre-pay 2017 property taxes on your personal residence.
This is not an absolute rule, but it should be a wise move for most people, not just investors. Because of the new law, you may lose the tax benefit of property taxes on your homestead. So make sure the bill is paid in 2017.
Defer business income into 2018.
If you’re about to get paid before the New Year, you may want to wait a few more days. Not only this income will be taxed one year later, but it might be taxed at a lower rate. Of course, your mileage may vary – it’s IRS taxes.
Accelerate business purchases into 2017.
You will get the business deduction in the current year, plus you might get bigger savings this year than in 2018. Speaking of good stuff to buy in 2017 – all our products are on a huge 45% OFF anniversary sale!
If moving – pay for the move now.
Business-related long-distance moves will not be deductible after this year.
Make your 2018 charitable donations now.
They might get you less (or even zero) benefit in 2018.
Accelerate miscellaneous personal expenses.
The new law eliminates the so-called miscellaneous personal deductions. The last days of December is your last chance to score a tax benefit from them.
So, that’s it?
Of course not. The new tax bill itself is over 1,000 pages. And a whole lot of Regulations, clarifications and debate will happen in the next months. Regular folks can afford to tune it out. But you are an investor. You have to be informed. So…
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