2017 Tax Act

Tax Brackets:

Tax brackets are 7 in number, and the rates for most taxpayers are reduced. Lowest is 10% highest is 37%.

The top marginal rate for individual taxpayers was reduced to 37%, but the threshold of income to which the rate applies was dropped from $1M to $600,000 for taxpayers that are Married Filing a Joint return (MFJ). These rates do not apply to tax years beginning after December 31, 2025.

Small Business

The pass-through income deduction was reduced from 23% to 20% and retains the limitations on specified service businesses, with a reduction on the levels of income that could qualify to $315,000 MFJ and $157,500 for an individual taxpayer filing Single. The Explanatory Statement issued with the bill provides, “the conferees expect that the reduced threshold amount will serve to deter high-income taxpayers from attempting to convert wages or other compensation for personal services to income eligible for the 20-percent deduction”. THIS WILL NOT AFFECT THE SELF-EMPLOYMENT TAX, BUT WILL CLEARLY IMPACT YOUR BOTTOM LINE. THIS IS EFFECTIVE STARTING IN 2018.

However, S Corporation owners will now face reductions in this deduction if they were not paid reasonable compensation.

Corporate rates:

The corporate tax rate is reduced from 35% to 21% with no special rate for personal service companies and no expiration of these provisions. In addition, the corporate alternative minimum tax (AMT) is repealed.

The bill retains the full ability to expense qualified property acquisitions (not including structures) of new and used property placed in service after September 27, 2017 and before January 1, 2023, with a phase down by 20% per year for property placed in service after December 31, 2022 and before January 1, 2026.

All entertainment related expenses will be fully disallowed for amounts paid or incurred after December 31, 2017.

The 50% deduction for food and beverages is maintained, and expanded to include expenses of the employer associated with providing meals to employees through an eating facility that meets the requirements for minimum fringes and for the convenience of the employer. After December 31, 2025, these amounts will no longer be deductible. Business owners will now have to ensure that caterers and restaurants where parties are held qualify.

Individual Deductions and Credits

Individuals receive a larger standard deduction of $12,000 (single) and $24,000 (join) and $18,500 for head of household. These are doubled for elderly. Thus, a person over the age of 65 can receive an exemption of $24,000 (single) and $48,000 for a couple. However, you lose the exemptions of $4,050 per person.

Child Tax Credit will be enlarged to $2,000 (with maximum of $1,400 for more than one child). Children who qualify are 17 and under. Qualifying income levels are raised from $75,000 for single taxpayers to $200,000 and $110,000 for married to $400,000 for married. This credit is refundable. There is a non-refundable credit of $500 for non-child dependents. To qualify for the full credit the child must have a social security number (not an ITIN).

Fewer will need to itemize, and there are some huge changes in deductions.

No more casualty or theft losses unless you are in a disaster area declared so by the President.
No more Miscellaneous itemized deductions. That means payment to your tax preparer, or for investment guidance or for that safe deposit box are not longer going to be deductible.
Reduced state and local tax deductions to a cap of $10,000 combined. Individual taxpayers will be allowed to deduct state income, property and sales taxes, up to an aggregate cap of $10,000 ($5,000 for a married taxpayer filing a separate return). This cap expires for tax years beginning after December 31, 2025. The bill also makes clear that the prepayment of any state income taxes related to a year beginning after December 31, 2017 will not be deductible in 2017.

The deduction for mortgage interest will be limited to mortgages not exceeding $750,000 for new mortgages incurred after December 31, 2017. For mortgages incurred prior to that date, the limitation is $1M ($500,000 in the case of married taxpayers filing separately). The interest expense deduction for home equity loans has been suspended for tax years beginning after December 31, 2017. The suspension will lift for tax years beginning after December 31, 2025.

Alimony will not longer be deductible nor will it be income to the spouse receiving it.

The individual exclusions and phase-out thresholds for Alternative Minimum Tax are increased, but neither is fully eliminated in the final bill.


Useful lives for calculation have been compressed.
Greater ability to write off entire purchase at time of purchase.

Estate and Gift Taxes

The estate and gift tax exemption is doubled to $10MM (indexed for inflation) for estates and gifts made after December 31, 2017 and before January 1, 2026. This allows $20mm per couple.


1. Defer income to 2018.
2. Pay Tax preparer early for 2018 tax return. (Don’t think you should try for years further out).
3. Pay 2018 real estate taxes before 2018.
4. Pay your state estimated taxes before 1/1/18.
5. Buy a new home.


Of course, I haven’t seen one word of the statute proposed, but there are some interesting things in this plan. (1) Lowering Corporate rates and repatriation tax, evening out small business income rates to lower their rates. This is not trickle down if they also attack the huge tax penalty on small businesses. Currently an LLC has a maximum effective rate of 39.6% and unlike large corporations, profits cannot be deferred easily. Also many times this income is subject to self-employment taxes to the effective rate would be closer to 48% plus state taxes. So, obviously the devil is in the details, but this could be a huge benefit for jobs if done. (2) Eliminating deductions. This will have a negative impact on middle income taxpayers in the following ways. Tax deductions (except for Mortgage interest and charitable) will be eliminated. This effectively increases income and property taxes for the amounts taxpayers pay to the States. This may make people pay more attention to the amounts being paid to their states and localities and put some pressure on the states and localities to reduce taxes themselves. This eliminates employee business expenses which means that those deductions for workers who have to buy tools or uniforms will be hit. This also eliminates medical deductions. So, if mom is in a nursing home and having to pay $100,000 a year in long term care expenses, she will not be able to deduct it under this plan. I suspect this will be one area that gets some pushback from Congress. (3) Capital gains rate reduction and elimination of 3.8% surtax on unearned income is geared toward higher income taxpayers. (4) Elimination of estate taxes is popular with Farmers and Small to medium sized businesses whose values are close to $10 Million. So, we’ll wait for the details. But some interesting proposals for sure.

Capital Gain or Loss on Gifted Property

When you gift investment or business property to someone and that person sells that property they owe tax on the gain. The basis in the property for gain purposes is what the basis was in the hands of the donor (the person making the gift). So, if the donor had a basis of $100 and the donee (recipient of the gift) sold the property for $110, there would be a $10 gain.

What is the basis for someone who receives a gift and sells it for a loss. In that circumstance the basis is the LOWER of the basis in the hands of the donor or fair market value at the time of the gift. So let’s say that Fred holds a mortgage note on Blackacre from Mona for $100,000. The mortgage is under-water and there is no way that Mona will ever be able to repay the loan. Fred gifts the note to his son, Bam. Bam immediately forecloses and the property sells for $50,000. Does Bam get a capital loss of $50,000 or a capital loss of zero. That goes to what was the market value of the note on the date of the gift. It would appear that it would no more than $50,000. However, if Bam could have gotten an appraiser or another lender to state that the fair market value of the note was an amount larger than $50,000, then Bam could perhaps take the loss equal to the appraised amount. This is found in Reg. 1015-1 of the IRS regulations.

Upstream Gifting

Let’s say Sid hit it big with your new product, Spacebook and he went from a middle aged computer geek to a billionaire overnight and lives in California. His aging parents are not in great health. His basis in his dot.com stock is about $10,000. His unrealized gain on that stock is $2,999,990,000. He wants to know how to reduce taxes and liquidate some of his stock in the next ten years. Perhaps he should gift $10,000,000 worth of stock to his parents. When the last parent dies, the stock is stepped up to the date of death value. Thus, the $10,000,000 in stock would now have zero capital gains. But Sid is nervous that his parents might not hold onto the stock. So, he said can I create a trust for them. The answer is yes. There are a number of trust vehicles that will work, so long as the last living parent has when is known as a general power of appointment to appoint the assets to his or her estate or creditors. There are trusts known as intentionally defective grantor trusts in which Sid gets taxed on the income while giving his parents the use of that income. The net result to Sid is tax savings of $3,300,000. You can buy a lot of other things for $3,300,000 and he is able to give his parents an income from that stock for the rest of their lives.

Tax Season is over and now for another tale.

There is a very big project going on in which the IRS, State Tax Departments, State Attorney’s General and the Justice Department are engaged. Medicaid fraud cases involving home health agencies. It usually starts with a home health agency owned by non-citizens. If the agency is located in a state with income taxes, the state then commences a net worth tax audit on the business owner. Usually, as with any American, there are problems with the return. Then commences a criminal tax filing alleging tax fraud and because the company is owned by a new or non-citizen with ties overseas, they ask for no bond and make statements about the medicaid fraud investigation that they are pursuing. Many times they will get the tax preparers involved as well with offers of immunity. At that point, the Government can force open the books of the home health provider. The other trick is to have the IRS pursue an indictment for failure to collect and pay over employment taxes. Usually this is a civil issue, but for these cases they use the criminal means to again force open the books of the company. While there is a ton of fraud in the home health industry, this particular program seems to be similar to the old mafia investigations where corruption could not be proved, so tax laws are used instead. So, to home health agencies out there a couple of words of warning. (1) Pay your withholding taxes, even if you don’t pay yourself, your rent or any other bill; (2) Make sure your personal tax returns are unassailable. Don’t simply trust your preparer. Review the returns carefully to ensure that all items of income and expense are properly taken. Remember you sign those returns under penalties of perjury. (3) If the FBI, IRS, or a state tax agent starts an audit engage a seasoned tax professional to get involved at the earliest possible time. This could mean the difference between an indictment and a civil penalty,. If you have returns out there that have problems and YOU HAVE NOT YET BEEN CONTACTED BY AUTHORITIES, consider voluntarily amending them and paying the taxes, interest and penalties now. (or at least starting a voluntary payment arrangement with the tax authority). If you are an immigrant and have family members overseas that you support, try to keep a log of what you send overseas and to whom. That way, when the Government comes calling you have a record of where the money went. Lastly, remember that if your gifts to any one person (anywhere in the world) exceed $13,500 you need to file a Federal Gift tax return. With these tips you might avoid a long spell in jail.