Talking Tax Reform
December 21, 2017
In a year of big news stories, tax reform is right up there. In this wide-ranging podcast, Timothy Speiss—the Partner-in-Charge of EisnerAmper’s Personal Wealth Advisors Group and Vice President of EisnerAmper Wealth Planning—talks about key issues to keep an eye on, some below-the-radar elements of tax reform and what taxpayers can do to stay ahead of the curve.
DP: So here we are, December 20th, the morning after the big vote in the Senate, 1:00am this morning. It’s a once-in-a-generation tax reform initiative. Where are we today? What are the key things that people need to know?
TS: The biggest item that we’ve been hearing both amongst our client base and from relationships with the firm, the marketplace, is the non-deductibility of state and local taxes, which is huge. Beyond that - the limitations on mortgage interest. There’s a number of corporate provisions, obviously, the big one being that the U.S. corporate rate will drop down to 21%, which is now more in line with our global trading partners. The rate used to be almost the highest in the world. So those are really the headlines. There’s a lot of other important issues, many of them fact–specific, and as we go through this discussion hopefully we’ll be able to highlight them.
DP: So what concerns are you’re hearing from clients? What is the takeaway? What’s actionable right now?
TS:Well, there are some preservation techniques – that’s the term we use to take advantage of deductions before they go away. The current law will stay in effect until December 31st. We have a lot of relationships looking to prepay state and local taxes this year, including real estate taxes, because those will expire where they exceed $10,000 in 2018. You have to be careful, though. The rules tell us that taxpayers cannot deduct taxes in 2017 for years that relate to 2018 or later. So you can’t prepay. That’s income tax. For real estate tax, if you’ve been billed, if you have an assessment from your township or state or municipality, that can be paid, that can be deducted. We still have clients that are going to be dealing with alternate minimum tax. The alternate minimum tax is a parallel tax system. Under that method or system it disallows state and local taxes. So we’re doing a lot of year-end planning to help clients and relationships maximize what they can deduct, or not, and pay, and be able to deduct, and that’s what we’ll be doing the rest of the year.
DP: So who are the big winners and losers here?
TS:The big winners and losers would be, believe it or not, individuals that don’t own homes and those that are seeking still to obtain mortgages. The new mortgage rules go into place effective January 1, where mortgages will be limited for home ownership to $750,000. Real estate taxes, though, will only be deductible up to $10,000 as I said earlier. So persons that are in the market for homes that don’t have one right now, they’re really not feeling any discrimination because of the non-deductibility of real estate taxes. So for them you could argue that they’re one of the minorities that there could be some good news going forward. I wouldn’t say, as far as losers, with the rates dropping, with the rate brackets widening, with the rates within the brackets decreasing, couldn’t say that there are any real losers. I think the persons that are disappointed right now are those with state and local taxes and real estate taxes. But, as I say, there’s still opportunities for them.
DP: I was reading the other day – which hasn’t gotten a lot of press coverage – but employers now will have to send brand new W4’s to employees, which is a small thing but it’s a big thing.
TS:They’ll be a lot of that – payroll, human resource, employee benefit, account benefit administration going into the New Year – there’s a lot of things that are going to be happening. By the way, everyone should be looking at their health care elections, life insurance elections if you’re working for a business or company but even for yourself.Interestingly, we were working on an article for freelancers and self-employed persons this morning. That’s a big area – everyone should look at their coverages in that regard. Those are tax deductible, by the way. Remember, there are not only year-end items to consider, but when you come into the new year with new plan coverage allowances – so just touching on what you just said – W4, it’s beyond that. It’s withholdings for W2s, which is the W4 you just cited, and those other related items.
DP: And you and I had spoken not long ago about charitable deductions.
DP: So tell us about that.
TS:Well, those are still in play. This is a great time of year for many persons to be thinking – certainly also getting reminded by their charitable organization affiliation – so those are still alive. This might be the year, depending upon your real tax bracket, you might be able to get a higher benefit if you accumulate charitable contributions this year. I know we’re getting close to December 31. And why is that? Because the tax rate for you could be higher this year and therefore the tax deduction and savings could be higher for you this year compared to next year. So that’s something to think about as well.
TS:For clients and relationships we’re up against a timeline – December 31. However, coming into the New Year - with the exception of state and local taxes - many of these opportunities will still be viable. Especially also the 25% rate for individuals who are operating a trade or business. So they’ll be a lot to do in the coming months.
DP: So with this process, often contentious, often controversial, never dull, what are your final thoughts as far as tax reform?
TS:Well, we’re looking at the corporate side, too. We didn’t talk about that. This discussion is really focused on individuals and business owners, but I think the fact that this tax bill is intended to make the United States more globally competitive, which is a big deal because anyone – and that’s probably everyone now – in some way are working in a global environment. So therefore reducing the corporate rate to 21% and also seeing that as a mechanism to perhaps enhance global trade could be a benefit for everyone. So that’s something to be aware of – new investments hopefully and a lot of opportunities.
DP: Well it sounds like you’re on top of things with respect to tax reform, and I thank you for your expertise and this great insight.
DP: And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast, when we get down to business.