New Year, New Tax Law
The new year has arrived, and that means it’s time to file taxes. For the first time in a long time, we have major changes in the tax law. About a year ago, Congress passed the Tax Cuts and Jobs Act (TCJA) on December 22, 2017. This was the largest tax law change since 1986.
Changes for Individuals
While we won’t be filing tax returns for the 2018 tax year on an actual postcard, the look of the tax return will be different with some updated and new forms and schedules. Among many of the changes, TCJA eliminated personal exemptions for a taxpayer, their spouse, and dependents. However, tax reform significantly increased the standard deduction to $12,000 for individuals and $24,000 for married filing jointly. Therefore, the number of taxpayers who itemized deductions in prior years will decrease.
The increased standard deductions may impact the deductibility of your home mortgage interest and charitable contributions. However, they may still be deductible on some state tax returns. TCJA also eliminated deductions, such as casualty losses and unreimbursed employee expenses, while limiting other deductions, such as state and local taxes and mortgage interest paid.
Additionally, though there are still seven tax brackets, the overall rates decreased for individuals. We expect to see lower tax liabilities for most taxpayers.
Changes for Businesses
For corporations, the top tax rate decreased from 35% to a flat rate of 21%. Another significant change is for taxpayers who have income from an S corporation, partnership, or sole proprietorship that can deduct 20% of their qualified business income – keep in mind, though, there are some limitations in taking this deduction depending on the taxpayer’s taxable income and other factors. By paying lower taxes, businesses should ideally be able to keep more profits and grow their business.
Whether you agree or disagree with the intent of TCJA, the time has come to see the impact of the tax reform.
There are many other changes due to tax reform that were not noted in this blog. If you have any questions about how TCJA may impact you or your business, please contact Delap today.