2018 Early Tax Planning – Six Steps Starting Now!

John (Rusty) Davis, CPA

Less than 5 weeks ago, the “Tax Cuts and Jobs Act” (TCJA) was signed into law, the most significant overhaul of federal tax laws since 1986. The new tax bill has triggered a frenzy of political, media, and financial chatter. But that chatter has now transformed into urgent action in the tax profession, with the IRS and States mobilizing, software companies scrambling, and taxpayers looking for answers. Consequently, there is no time to waste on the debate, as we all need to get down to business – now.

Following is a 6-step process to quiet the chatter and begin to gain control over your 2018 tax position:

  1. Data Gathering and Education – Presently, most businesses and individuals are in some stage of gathering 2017 tax and financial data, to report results and to file 2017 tax returns in the coming weeks. At the same time, everyone is learning about the new tax laws and thinking about what the impact will be for 2018 and beyond. For the record, the tax profession is in a deep dive mode to study and train on the new laws, and convert that learning into actionable knowledge to advise our clients properly. We are attending multiple tax law presentations and studying on our own – we are getting there. Our tax software providers will be rolling out updates soon. IRS has just released new payroll withholding tables. We see this phase running out for the next few weeks, into the heart of tax season. Recommendation: While gathering 2017 tax and financial data, think about and document what 2018 may bring, and be ready to communicate that to your tax advisor during the process of 2017 tax filings and financial reporting. We advise against assuming that your 2018 tax liabilities will go down, instead focusing first on getting the numbers on the table. There are a lot of moving parts to bring together before reaching a conclusion.
  2. Business Entity Evaluations – Among the headlines of the TCJA, two in particular could have major ramifications for choice of entity: the new 21% max C Corporation tax rate, and the new 20% deduction at the individual level, for “qualified business income” from a partnership, LLC, S Corporation, or sole proprietorship. Additionally, there are many other changes that could move the business tax meter considerably. And, pre-TCJA regulations require an S Corporation election or revocation to be filed within 75 days of the start of the fiscal year – March 15, 2018 for calendar year entities. Recommendation: Pause, think, and discuss with your tax advisor ASAP, to identify if a potential change in entity choice should be considered, and then revisit in the coming weeks with a 2018 tax projection or modeling of key factors.
  3. Individual Tax Forecasting –  All individual taxpayers now gathering 2017 tax data, should be “running the numbers” on 2018, based on your early year expectations about the many major changes that could impact your 2018 tax returns including new tax rates, exemptions, itemized or standard deductions, tax and interest deductions, AMT, state taxes, and many more parts of the new laws. Recommendation: Combine your 2018 “forecast” with your 2017 tax data gathering, and present to your tax advisor for evaluation when preparing your 2017 tax returns.
  4. Employee Payroll Withholdings – Whether employee or employer, be sure to coordinate with your payroll provider and/or software company to ensure that updated Federal and State withholdings are implemented for 2018. Although it may be difficult to forecast your entire 2018 tax results, be sure to get current on withholdings. Recommendation: Employers should review and update all employee payroll withholding tables and processes, and Employees should forecast 2018 tax results soon, so that 10 to 11 months of withholdings can produce the proper totals on your 2018 W-2’s.
  5. 2018 Business or Individual Estimated Tax Payments – By April 17, 2018, many calendar year corporations and individuals will be required to remit 2018 first quarter estimated tax payments. These amounts can still be set to “safe harbor” amounts based on 2017 actual results. However, given the magnitude of TCJA changes for both business entities and individuals, there should be an extra emphasis on the 2018 “crystal ball”. Our firm utilizes best-in-class tax projection software to model business and individual scenarios for 2018, which we think is a must given the complexity of new changes. Recommendation: Run your numbers with high, low, and medium potential outcomes, and update them quarterly during 2018, and share them with your tax advisor.
  6. 2018 Mid-Year and Year End Tax Planning and Projections – As the saying goes “without a map, any road will get you there”. After all of the above steps, tax planning comes down to good numbers, staying current, looking forward, and communicating with your tax advisor. Update forecasts periodically, and re-evaluate quarterly estimated tax amounts or payroll withholdings in the second half of the year. Recommendation: Get ahead of the curve now on new TCJA changes, and how they will affect you and your business for 2018 and future tax years.