Private Business Counsel

It’s the holiday season and everyone has plenty of items on their “to do” list.  The proposed tax reforms have created additional items to add to your list that you may consider completing before December 31 (of course subject to a bill actually passing)!  The House bill and Senate bill have differing provisions.  It is speculative to guess how the final tax legislation will read.  There are certain things one can do now to lower one’s tax bill in light of the substantial possibility that the tax law will change in 2018.

1. Sell High Basis Shares. Under proposed legislation, taxpayers would be required to use the FIFO (first-in first-out) method for determining the basis of stock positions in a block of stock in a single issuer.  Specific identification of the high basis shares would no longer be permitted subject to certain limited exceptions. Likewise, before December 31, 2017, one can make a charitable donation of the lowest basis shares in a block.
2. Pay State and Local Taxes. Before December 31, 2017, pay estimated state and local taxes and pay real estate taxes.  Proposed legislation would eliminate the deduction for state and local income taxes and potentially eliminate the deduction for state and local real estate taxes.  There would be an exception for state and local taxes incurred in a trade or business.  Furthermore, proposed legislation would increase the standard deduction so that fewer individuals would be taking Schedule A deductions, including state and local income tax and state and local property tax.
3. Settle Lawsuit. Before December 31, 2017, settle and pay all lawsuits against employers for sexual harassment or sexual abuse if the settlement would be subject to a nondisclosure agreement.  Hopefully you do not have many of these types of lawsuits, but if you do, proposed legislation would prohibit a deduction for amounts paid or incurred for any settlement payout, or attorneys’ fees related to sexual harassment or sexual abuse cases if the settlement was subject to a nondisclosure agreement.
4. Undertake Like-Kind Exchanges. Undertake all like-kind exchanges of property, other than real estate held for use in a business, before December 31, 2017. Under proposed legislation, like-kind exchange treatment would only be available for real estate.  Like-kind exchange treatment would no longer be available for the exchanges of equipment used in a business.
5. Limit Debt. When capitalizing business entities, limit the amount of debt.  Under proposed legislation, interest expense would be limited to 30% of the adjusted taxable income.  Certain exceptions would apply. For pass-through entities, the rule would be applied at the entity level and not the partner level or the shareholder level.
6. Buy Real Estate. Buy real estate used in a business in January 2018 as opposed to December 2017.  Under proposed legislation, residential and non-residential real estate would be depreciated over 25 years as opposed to the common 27.5 years for residential real estate, and 39 years for non-residential real estate.