6 Things to Know About the Tax Cuts and Jobs Act

If the final couple months of 2018 snuck up on you, it’s not too late to do some tax planning for the current year. It may be time for a refresher on how the Tax Cuts and Jobs Act, passed last December, may affect you and/or your business.

If you’re filing for your own household, remember that:

1. The standard deduction has nearly doubled. All single taxpayers can now claim a $12,000 standard deduction. Married couples filing jointly will see an increase to $24,000. But the personal exemption has been eliminated, which may have an adverse effect for larger families.

2. Taxpayers who itemize will not be able to claim as many deductions. This isn’t as critical because of the increased standard deduction, but if you’re still planning to itemize, you’ll find that some deductions have been eliminated, including investment and tax preparation expenses and unreimbursed employee business expenses.

3. You can still deduct medical expenses if they exceed 7.5 percent of your Adjusted Gross Income (AGI). As far as charitable cash donations go, you’ll be able to deduct up to 60 percent of your AGI (the maximum was previously 50 percent). And if you bought a home after December 15, 2017, you’ll only be allowed to deduct mortgage interest on $750,000 of acquired debt, a reduction of $250,000. Interest on home equity loans is no longer deductible.

4. The deduction for state, personal property, and real estate taxes paid is now limited to $10,000. This change will likely force many taxpayers to use the standard deduction.

5. A bit of good news, the child tax credit has expanded. Taxpayers receive a $2,000 tax credit, of which $1,400 is refundable, for each qualifying child under age 17. The phase-out has also increased significantly, starting at $200,000 for single filers and $400,000 for joint filers.

6. Individual tax rates have been lowered. There are still seven brackets, but they now range from 10-37 percent instead of 10-39.6 percent. The brackets have also widened, meaning taxpayers benefit from lower rates on more dollars of income.

Good News (Mostly) for Businesses

Experts are still unpacking the Tax Cuts and Jobs Act, and some rules for businesses have yet to be clarified thoroughly. Some things are clear, like the drop in the corporate tax rate to a flat 21 percent.

Others are still a little hazy. Owners of sole proprietorships and pass-through entities, like S-corporations and partnerships, will be allowed to deduct 20 percent of their Qualified Business Income (QBI) if taxable income does not exceed $157,500 for single filers or $315,000 for joint filers. Taxpayers who report more than these limits will receive a reduced deduction. Some professions (legal, medical, accounting, and other service businesses) may not be eligible for the 20 percent deduction if taxable income exceeds certain thresholds.

We’re keeping up with everything that could have an impact on your 2018 taxes, whether it’s for personal or business income. We strongly suggest you contact us soon to help determine whether you need to take some action before the end of the year.