12/27/2017
To:
Clients & Friends
From:
Robert D. Boyle, CPA
Date:
December 27, 2017
Re:
New Tax Law
Clients and Friends:
As you are all aware, President Trump signed a new tax bill last week.
For the past several weeks, I have been getting several questions about the immediate impact of the new legislation.
Some points and comments:
1. The new law does not go into effect until 2018. Your 2017 income tax will be the same as in the past.
2. Many of you have read, from allegedly reputable sources, that you should prepay 100% of your 2018 State and local income taxes and prepay 100% of your 2018 real estate taxes.
a. the new law specifically prohibits the prepayment of your 2018 State and local income taxes in 2017 for a deduction in 2017. However, if you feel you have not paid enough state and local income taxes for 2017, that 2017 shortfall may be paid and deducted in 2017 if they are paid before 12/31/2017.
b. Real estate taxes may not be deducted if their payment creates an asset. By paying you 2018 real estate tax in 2017 you are creating an asset called prepaid expense. There is one exception to this and that is to apply to the IRS for a change of Accounting method. In my opinion, it is not worth the the time and expense to make this application. Further, there is no guarantee the IRS will permit the change in accounting method.
c. Many talking heads, including some reputable sources, are stating that, in NJ, you can prepay the 2018 assessed portion of your 2018 real estate taxes. I do not agree with this approach. If you look at your real estate tax bill that you received in the summer of 2017 it indicates the "preliminary 2018 Real Estate Tax. I do not believe that preliminary means the same thing as assessed. Your interpretation may vary.
d. Most of my clients are in the Alternative Minimum Tax (AMT). The AMT precludes the deduction of State and local income tax, sales tax and real estate taxes. Therefore, there is no benefit to prepaying any state taxes. To check if you were in the AMT in 2016, check your 2016 tax return (pg 2 line 45 of the return). If you were in the AMT in 2016 and have not had any major changes in 2017 you will probably be in the AMT again in 2017.
e. In the past, based upon IRS audit experience, I have had no issue with the prepayment of 1/4 year real estate tax payments. There are no guarantees here and the IRS may take a harder line on this prepayment issue due to this new legislation. But if you must take a shot at the real estate tax prepayment, I suggest you stop at 1/4 year and not try for the whole year.
There are many other complicated and sweeping changes in the law.
The most detrimental that I see so far is that Accountants, Doctors and Attorneys are precluded from the preferential pass through income tax rates that will be available to all other pass through entities.
The best thing that I see is the great reduction in the corporate tax rates.
I will keep you posted as things develop throughout 2018.
Robert D. Boyle
Robert D. Boyle
Certified Public Accountant
Boyle & Company, PA
113 Johnson Avenue
Hackensack, NJ 07601
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Phone: 201-487-6666
Fax: 201-487-6689
[email protected]
Website: Boylecocpa.com
