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Tax ‘Reform’ of 2017

Unless there is a miracle, the tax ‘reform” law will be passed and signed soon. We think taxes were already complex enough, but no one asked us. More on this later, after the important question:

Is It Good for Me?

Maybe. The primary goal of the ‘reform’ was to lower corporate taxes. The reform is a winner here for large corporations (such as those on the stock exchanges). Smaller businesses with good profits will also benefit.

The changes for individuals are more mixed, including higher taxes for some high income executives. In general, many of us will see a slight reduction of taxes for a few years. But your actual results will vary depending on how many children you have, your state and local taxes, your charitable contributions, your miscellaneous deductions, whether you pay alimony, etc. There will be other factors, but these are the headlines. Because there are so many variables, it is impossible to tell if the reform helps without doing a calculation and comparison.

Forget the postcard, this is not tax simplification. There are more than 500 pages added to the tax code. The law will require many more pages of interpretation, technical corrections, and regulations in the next couple of years. The states will also have to adapt to the Federal changes. We are still learning the details, so we can use them to your advantage.

Steps to Take Before January 2018

This is general advice, and might not be appropriate for you.

  • If you can, defer income until 2018.
  • Pay any allowable moving expense and alimony that you can in 2017.
  • Pay 2017 property taxes.
  • Pay 4th quarter 2017 state estimated taxes.
  • Make charitable contributions in 2017.
  • Pay any miscellaneous itemized deductions that you can in 2017.

If you are subject to estate tax, live at least until 2018.

We recommend that you take advantage of Arizona Tax Credits, at least to the extent of your Arizona tax. There are no significant changes from last year. See below for details.

The Obvious Problem

The legislation was thrown together very quickly, with no public input. The last reform (1986), 30 years ago, had a year of public input and the support of both political parties. The 2017 act will likely have more errors and unintended consequences.

The Internal Revenue Service (IRS) has had its budget cut by $900 million (more than 15%) since 2010. There are 21,000 fewer IRS employees than in 2010. Its computer systems are inadequate. After the 1986 reform, the IRS got more employees and budget to handle the tax changes. This time, budget cuts are being proposed. Enforcement has already declined, and it can take months to get IRS errors corrected. We don’t expect better results next year under these conditions.

Going Forward

On a positive note, life will go on, and we expect an increased demand for tax advice. We believe tax laws will continue to change. We believe an ongoing relationship with our customers is the best way to stay on top of the always evolving tax puzzle.

Please don’t hesitate to call or email us with questions or for additional strategies on reducing your tax bill. We’d be glad to set up a planning meeting or assist you in any other way that we can.”

Filing Deadlines

W-2, 1099-MISC, and Partnership

Business owners and rental property owners who pay employees or vendors will now have to file with the IRS by January 31. The Forms W-2 and 1099-MISC previously had to be mailed to employees or vendors by then, but could be sent to the IRS later. Both deadlines are now January 31, to make it easier for the IRS to detect and prevent fraud. Partnership returns are now due one month earlier, on March 15. Late filing penalties have increased, and can be significant, so plan ahead.

Foreign Financial Account Reporting (FBAR and FinCEN)

The filing deadline is April 15, unless you live outside the US. An extension is available for six-months, the same as for individual tax returns.

Arizona Tax Credits

Arizona Qualifying Charitable Organization Tax Credit

The maximum credit has doubled to $400/single and $800/married. The deadline has been extended to April 15, 2018 or when you file your income taxes, whichever comes first. We recommend donations be made by December 31, 2017, so the Arizona credit and the Federal itemized deduction are in the same year. This simplifies record keeping.

Arizona Foster Care Charitable Organization Tax Credit

The maximum credit has increased to $500/single and $1,000/married. The deadline has been extended to April 15, 2018 or when you file your income taxes, whichever comes first. We recommend donations be made by December 31, 2017, so the Arizona credit and the Federal itemized deduction are in the same year. This simplifies record keeping.

Arizona Fees Paid to Public Schools (including Charter Schools) Tax Credit

Anyone can take this credit. The maximum credit is $200/single and $400/married. The deadline is April 15, 2018 or when you file your income taxes, whichever comes first. We recommend donations be made by December 31, 2017, so the Arizona credit and the Federal itemized deduction are in the same year. This simplifies record keeping.

Arizona School Tuition Organization Tax Credit

Anyone can take this credit. The maximum credit is $1,089/single and $2,177/married. The deadline is April 15, 2018 or when you file your income taxes, whichever comes first. This is actually two credits, and the Organizations will guide you on the details. We recommend donations be made by December 31, 2017, so the Arizona credit and the Federal itemized deduction are in the same year. This simplifies record keeping.

Arizona Military Family Relief Fund Tax Credit

Anyone can take this credit, but not for 2017. The maximum credit is $200/single and $400/married. The deadline is as soon as $1,000,000 has been donated and the 2017 limit has been reached. More information is available from the Arizona Department of Veterans’ Services. If you’re interested, check back with them in early 2018.

We are here to help. Email or call us today to set up a consultation.