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Year-End Tax Planning

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Clients and Friends:

As we approach year-end tax planning, we are writing to you to inform you of important tax developments that have occurred in the recent months.

The Trump Administration and select members of Congress have released a “unified framework” for tax reform. The document provides more detail than a number of other tax reform documents that have emerged from the Administration over the past few months, but it still leaves many specifics to be worked out by the tax-writing committees (i.e., the House Ways and Means Committee and the Senate Finance Committee).

In summary, the Plan provisions affecting individuals are as follows:
• increase the standard deduction to $24,000 for married taxpayers filing jointly, and $12,000 for single filers;
• eliminate personal exemptions and the additional standard deductions for older/blind taxpayers;
• reduce the number of tax brackets from seven to three: 12%, 25%, and 35%;
• Increase the child tax credit;
• repeal the individual alternative minimum tax;
• largely eliminate itemized deductions, but retain the home mortgage interest and charitable contribution deductions; and;
• repeal both the estate tax and the generation-skipping transfer tax but not the gift tax.

Plan provisions affecting businesses would:
• provide a maximum 25% tax rate for “small” and family-owned businesses conducted as sole proprietorships, partnerships and S corporations (with anti-abuse provisions that may mandate a certain percentage of the pass­ through income be treated as compensation);
• reduce the corporate tax rate to 20%
• provide full expensing of new fixed asses other than buildings for five years;
• partially limit the deduction for net interest expense incurred by C corporations.
• Repeal most “additional” deductions and credits, but retain the research and low-income housing credits;
• Modernize special tax rules that apply to certain industries and sectors;
• Provide a 100% exemption for dividends from foreign subsidiaries and possibly move to a territorial tax system; and
• Tax the foreign profits of U.S. multinational corporations at a reduced rate and on a global basis to protect the U.S. tax base.

The outline of the Tax Reform set forth above is still a work in the process with no draft bill circulated as of yet. We will keep you up to date and you are also always free to check out websites for updates.

Disaster Tax Relief

With 2017 being a tough year with respect to the recent weather occurrences, on September 29, President Trump signed into law the “Disaster Tax Relief and Airport and Airway Extension Act of 2017” (P.L. 115-63). The Act provides temporary tax relief to victims of Hurricanes Harvey, Irma, and Maria. Relief for individuals includes, among other things, loosened restrictions for claiming personal casualty losses, tax-favored withdrawals from retirement plans, and the option of claiming the deduction in the current or prior year.

Furthermore, businesses that qualify for relief may claim a new “employee retention tax credit” of 40% of up to $6,000 of “qualified wages” paid by employers affected by Hurricanes Harvey, Irma, and Maria (for a maximum credit of $2,400 per employee). In addition to the new law, IRS has granted specific administrative hurricane relief, for example, extending various deadlines, encouraging leave-based donation programs for hurricane victims, and allowing retirement plans to make hardship distributions.

If you suffered any unreimbursed loss or damage due to the various hurricanes or California wildfires, be sure to document the losses and amounts. With the tax relief provided, the limitations based on adjusted gross income have been waived.

With so many actual and anticipated changes in tax law, tax planning this year is especially important. We can help you to determine whether you should be accelerating income or deductions, making gifts, harvesting capital losses to offset capital gains or vice versa and claiming any disaster losses in the most beneficial tax year.

Please contact us to schedule a year-end tax planning appointment as soon as possible.