You’ll probably hear the sound of fireworks at the stroke of midnight on January 1, but something else happens at midnight that’s causing plenty of fireworks without any sound at all. In less than a week the new tax system will go into effect. The sweeping legislation, official name H.R. 1 (115), is the first major tax reform in the United States since 1986.
Because it was signed so late in the year (December 22, to be exact), there’s not much time to prepare or put procedures in place. To add to the confusion, some parts of the bill take effect beginning January 2018 and other parts don’t kick in until January 2019, leaving accountants, businesses, taxpayers—even the IRS—trying to figure out what to do.
It’s a good bet that accountants are giving up their holidays in exchange for learning the ins and outs of the new tax code and answering a barrage of calls and e-mails from concerned clients.
People who have traditionally done their own taxes may be considering hiring an accountant this year.
Proponents of the tax bill say that about three-quarters of Americans will see a tax cut as a result of the new bill, however there are a lot of variances that can cause huge differences between people who are in the same tax bracket.
Will your taxes go up or down? Try the online tax calculator from The New York Times—it may help you get an idea whether you’re headed in one direction or the other.
There are a few things you can do right now that may help your future tax situation:
BEFORE JANUARY 2018
Change the deductions in your paycheck
You won’t see changes in withholdings in your paycheck until February at the earliest, but you can get ahead of the game by changing your withholdings now.
Charities: Donate now
If you itemize your deductions, donate before the end of the year. You’ll get a greater tax benefit now than you will in 2018.
Prepay your property tax if possible
You may be able to prepay your state and local property taxes, depending on where you live, in order to avoid the $10,000 deduction cap going into effect next year.
Find out if you qualify as a pass-through business
A new 20 percent deduction for pass-through business income will be limited based on income, type of industry, wages paid and cost of depreciable property.
Start a 529 savings plan
If you pay tuition for your kids to attend a private school, you can start benefiting right now by contributing to a tax-exempt 529 college savings plan.
Defer or accelerate your income
You may be better off deferring income; the more a person owes in state income taxes before 2018, the more they can deduct before the limit kicks in.
Taxes down … taxes up?
The changes to the tax code for households, not corporations, expire after 2025, which means most families may see an increase in their taxes at that time.
If all of this information makes you even more confused, you may want to consult with an accountant. Make sure he or she is licensed and in good standing; check online with the State Board of Accountancy before you choose one.