The 2018 Tax Cuts and Jobs Acts has been met with many varied opinions...along with many varied thoughts on what the real- world implications are. Regardless of what your thoughts on the TC&JA, there are some things to consider when filing your taxes this year.
In preparation for the upcoming tax season we like to "practice" using old tax returns. Often this helps us work out the kinks in our software, billing, and just refreshes our minds after a long break. To do all these practice returns we use old client tax returns, and apples to apples, each of these clients are getting a bigger refund this year! There are quite a few changes from previous years though, and my aim is to let you know what to expect this year when you start to work on your 2017 taxes.
The most noticeable difference is going to be the way the 1040 looks. Gone are the days of a two-page return... we have a postcard now! Don't be sad, it expands for those who need it. Second, there is only one return now, no more 1040A or 1040EZ, they are all filed on the same 1040 form.
Next, most of the tax brackets have been reduced. Below are both the new and old brackets, so you can see the changes.
The next biggie for most people is the increase in standard deduction, and the changes to itemized deductions. For your 2018 taxes the personal exemption has been suspended, but to make up for it the standard deduction has been increased, and the child tax credit has been doubled. Child tax credit went from $1,000 to $2,000 per qualifying child, up to $1,400 of that is refundable (equal to 15% of earned income above $2,500). There is also now a $500 credit for eligible dependents who can't be claimed for the child tax credit. Below are the standard deduction changes.
For people who get over the standard deduction with itemized deductions, you can still take mortgage interest, property tax, medical expenses (the threshold dropped from 10% of AGI to 7.5% of AGI), and charitable contributions, but employee business expenses, tax prep fees, and a handful of other items that used to be on the Schedule A are no longer deductible. Sorry to all our oil field workers who are used to claiming the deduction for per diem, we still think you'll end up on the better end of this, and now you don't have to worry about keeping mileage logs & calendars with dates in the field!
The final big change is to our self-employed, including come S-Corp & Partnership clients. You will still file like normal, but beginning in 2018 you may be able to deduct up to 20% of your qualified business income (QBI) from your adjusted gross income (AGI), as long as your taxable income is less than $315,000 for married filing joint, or $157,500 for all other filing statuses. Incomes over these amounts may still qualify, but will be subject to additional limits and qualifications.
There have been a few other minor changes, that affect very few of our clients.. so few that they aren't worth mentioning even. But if you're curious, please visit the IRS at https://www.irs.gov/tax-reform. You should find everything you could ever want to know is listed here.
Otherwise our office will be open starting Monday, January 21 for regular hours and we'll be ready to start preparing returns. Come see us at our main office- 2403 College Hills (949-1040) or the north office- 327 W 11th (659-1040).