2017-12-29 / Business

New tax reform: what you need to know before the end of the year

Buy your game tickets before 2018
Contributed by Liberty Tax, Inc.

With House and Senate approval of a tax overhaul, South Carolina taxpayers have only precious days to take action in 2017 to reduce their taxes—and get a tax break on Gamecock tickets. Here are a few things taxpayers should consider before the end of the year.

Disaster Declarations and Tax Relief

Residents in presidentially declared 2016 disaster areas, such as those affected by Hurricane Matthew, may be exempt from the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts, such as IRAs and 401ks.

In addition to exemption from the early withdrawal penalty, these taxpayers can elect to spread the distribution over three successive tax years, lowering the effect of the additional income.

“These taxpayers will also have the opportunity to re-contribute into their retirement plan for three years to replace the withdrawn funds without the distribution affecting their taxable income,” explained Larry Slaughter of Liberty Tax in Columbia, S.C. “The legislation also provides for amending returns to take advantage of this relief for disaster area residents. But, yes, you may have only a few days before December 31 to take action.”

Unreimbursed Employee Expenses

“We also see a significant change coming up in a few days for taxpayers who have a large amount of unreimbursed employee business expenses,” said Slaughter.

The tax bill that lawmakers will send to President Trump calls for a far larger standard deduction of $24,000 for a married couple filing jointly. However, some taxpayers routinely have extensive employee business expenses, such as those for personal automobile use, home office expenses, travel, business meals, and more. This deduction for employees is eliminated in the tax bill effective January 1.

“Businesses will generally still be allowed these deductions,” said Slaughter. “If your employer is open to discussing reimbursement under an accountable plan, now would be the time to ask.”

Tax Relief for Small Business Owners

The tax bill has change in store for small business owners. For a married couple filing jointly, the tax bill allows a 20 percent deduction on the first $315,000 of earnings. Couple this savings with South Carolina’s reduced tax rate on active business income, and the business owners will receive tremendous tax relief.

“It will be important to evaluate the business structure of small and medium-sized businesses in light of these tax reforms,” Slaughter said. “An election for a business to be treated as an S Corporation may be beneficial now, and meeting filing deadlines for these elections is critical.”

There are special rules for personal services businesses, those that rely on one or more employees’ reputation or skill, particularly in accounting, health, law, athletics, performing arts, health, and others. It’s best to check with your tax professional to learn which businesses qualify and which are exempt.

“Engineering and architecture firms were specifically written out of this definition in the compromise negotiations,” Slaughter noted. “So we have some particular opportunities for these type businesses.”

Year-end and beginning year tax planning is always important. It is especially important this year with the likelihood of this new legislation.

And about those Gamecock tickets – buying the tickets won’t fare as well on your 2018 federal income tax return. Under the tax bill, contributions to institutions of higher education for which you expect to receive the right to purchase tickets to athletic events no longer will qualify as a charitable deduction. Also, businesses won’t be able to deduct for entertainment expenses at all starting in 2018. That’s not likely to stop Gamecocks fans from purchasing tickets, but it will make them more expensive in the long run.

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