A Brief Look at the GOP Tax Proposed Legislation
Well after months of waiting it has happened – the GOP has presented its legislation to reform and/or reduce income taxes. The new bill entitled “Tax Cuts and Jobs Act” is said to be the most significant rewrite of the tax code since 1986. The attempts to simplify the tax code so that millions of taxpayers may be able to file a postcard size tax return is now facing the grueling process of approval in both the House and Senate. While the final form of the legislation is anyone’s guess at this time, there are some facets of the proposal, effecting individuals, we need to consider.
State income taxes and local property taxes would no longer be tax deductible. So, the state withholding or estimates you pay in 2018 would no longer be considered an itemized deduction.
As a planning tip consider paying enough on your fourth quarter Oklahoma tax estimate in December 2017, to include all or a portion of your 2018 estimated tax, then leave the overpayment on your 2017 return to apply to 2018. Because the tax is deductible in the year paid you can deduct the entire amount on your 2017 return. For 2018 you may use the new standard deduction.
The deduction of medical expenses more than ten (10) percent of your adjusted gross income is to be eliminated – so no deduction for medical, dental or medication expenses.
The deduction of preparation of the tax return and other expenses previously considered “other itemized deduction is eliminated.
The deduction for home interest is limited to the interest on the first $500,000 worth of home loans. Only those with a mortgage in excess of $500,000 will be affected.
The standard deduction will double from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples. With the loss or reduction in all itemized deductions except charitable contributions, many taxpayers will now benefit more by using the standard deduction.
There are also rate reductions and elimination of the AMT (sure to be a winner with tax preparers who all dread the AMT computation).
The ultimate elimination of the estate tax will benefit those with assets greater than the current $5.49 million exemption per person. The estate tax exemption is to be phased out with annual increases until 2024 when it will go away.
The debate about the cost and benefits of the act is forming along partisan lines, making it difficult to know what is reality and what is hyperbole. For now, we can monitor the antics on the nightly news or have a cold drink instead. The Congressional talking heads will drop the typical clichés and bore us all with his/her justifications on either side of the issues until we are as frustrated as the last time we had “meaningful” tax reform.
One thing you should all do is communicate with your tax preparer – he/she will be busy this year.
We invite your questions or comments
JACK, MIKE AND KAYLA