More New Tax Updates on the New Tax Law
August 24, 2018
The new tax law will definitely bring a lot of new tax changes to the tax returns for 2018. Therefore, planning for them now would be a wise idea. First of all, let's examine how the new tax law will affect individuals, then we will discuss the effects on the small businesses.
In general, new tax rates went down on average by about 3%. The itemized tax deductions were eliminated. Standard tax deduction increased to $12,000 for single filers, $18,000 for the head of household and $24,000 for married filing jointly. The increase in the standard tax deduction can create more in tax savings if you hire your children and pay them fair salary. Their first $12,000 will not be taxable.
In terms of itemized tax deductions, medical deductions went to 7.5% threshold of AGI (Adjusted Gross Income)-it was 10% for a few years. Sadly, income tax and real estate tax deductions are limited to $10,000 in total. Mortgage interest remain tax deductible for up to $750,000 loan (this includes combination of first and second homes as well as home equity lines of credit).
Sadly, 2% of miscellaneous itemized tax deductions are gone! Therefore, unreimbursed employee expenses are no longer tax deductible, along with tax preparation fees and investment brokerage fees.
On the positive side, child tax credit has increased to $2,000 per child. $1400 of which is refundable. In addition, $500 of non-refundable tax credit will be available for other qualified dependents.
Moving expenses are not tax deductible, except for Active Duty of the Armed Forces. Alimony is not tax deductible and nontaxable to the recipient. Alimonies occurred in the previous years will be applied to the same old rules, unless the new changes to the alimony will be made by the court.
As it comes to the business changes, the main change is 20% pass-through deduction on net business income, provided income does not exceed $157K for single filers and $315K for married filing jointly. Traditional businesses, such as retail, restaurants, manufacturing will have no income limitation to phase out. There is no longer a meals and entertainment tax deduction, and employee meals will be deducted at 50% (which used to be 100%).
Again, this is just a brief overview of the tax law changes. If you would like to learn more about the new tax law and how it will affect your personal situation, register for one of our monthly tax seminars. The first seminar is coming up on August 24th.
Please feel free to contact us with your tax questions at 1-800-5040-272(CPA)