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It turns out the new tax law will be anything but simple for many affluent Americans, who are now inundating their accountants for advice. “They made it a lot more complex for a lot of people,” said Jody Padar, chief executive officer of New Vision CPA Group in Mt Prospect, Illinois. Clients are already asking how to exploit the changes, according to certified public accountants, lawyers and financial advisors. In some cases, the best advice is clear. For others, especially business owners, tax experts are scrambling to understand the full implications of the 500-page law, which changes the rates on individuals and corporations, and eliminates or limits many popular deductions. As a result, the new law could change the financial consequences of major life decisions for millions of Americans. President Donald Trump signed the Bill into law on Friday. That allows the Internal Revenue Service to begin writing regulations on exactly how the law’s more complicated provisions—notably the deduction for pass-through businesses—would be implemented. But many advisors are already starting to plan, and calculate options, for their clients. Business owners Among the law’s most controversial and confusing provisions is a new 20 per cent tax deduction for pass-through businesses, which are privately owned firms whose owners pay individual rates on the income they earn. That, along with a slashing of the corporate tax rate from 35 per cent to 21 per cent, is raising big questions about how to structure companies in 2018. Estate planning Another frothy area of planning next year will be around transfers of money to heirs. The tax law maintains the federal estate tax, but it doubles the amount of wealth that is exempt from the levy after death and a related tax on gifts during a person’s life. Starting in 2018, single people who die with about $11 million would not be subject to the estate tax, up from $5.5 million. Married couples can shield about $22 million from estate and gift taxes. Pay cheques Many salaried workers across the US—of varying income levels—will need advice on how much should be withheld from their paychecks next year after most of the law’s provisions go into effect in January. Commuting Employees should also note that buried in the tax law are changes affecting commuters.
The tax law eliminates a break that currently allows companies to deduct some of the cost of providing parking and transit passes. It also ends a $20 a month benefit to help cover the costs of employees who bicycle to work. The provisions could push employers to stop subsidizing their workers’ tabs for parking, mass transit and bike maintenance.Real estate The legislation will also impact finances at home. That's because it caps at $10,000 the amount of state and local income and property taxes that taxpayers can deduct each year. Groups representing the real estate industry have said they’re worried that this could lower home prices, especially in high-tax, high-cost areas of the US Also affecting homebuyers is a new cap on the mortgage deduction. For new purchases of homes, the deduction would be capped at loan amounts of $750,000, down from $1 million. Marriage and divorce Under current law, many two-income couples end up paying more in taxes by getting married. The law eliminates that marriage penalty for couples making less than a combined $600,000. But be advised: Those individual tax-rate changes are set to end in 2026 — after that, your marriage might have to be just about love. Adding to tax bills for some couples is the cap on state and local tax deductions. It's limited to $10,000 for married couples, even though two single people can deduct $10,000 each. Those who will get divorced will also get affected. Under the law, divorced taxpayers who pay alimony would no longer be able to deduct those payments from their income, and recipients of alimony would also no longer need to report the money as income. However, the provision doesn’t go into effect right away and instead applies to divorces finalised after December 2018.