A brief overview of the new tax changes
The Tax Credit and Job Act was a major overhaul to the tax code. The changes can affect individuals by thousands of dollars and businesses by tens of thousands of dollars. I have provided a brief list of the tax changes for both individuals and businesses but there are many more.
The Obamacare penalty will be repealed beginning 2019.
The tax rates were lowered for every tax bracket except the 10% bracket. This will benefit the vast majority of taxpayers.
The standard deduction has substantially increased. The new standard deductions for 2018 are $24,000 for couples, $12,000 for singles and $18,000 for head of households. Taxpayers 65 and up and blind people will get $1,600 more per person if filing single or head of household. If married filing jointly and one spouse is 65 or older, you can take an additional $1,300, or if both spouses are 65 or older, you can take an additional $2,600.
The personal exemptions have been eliminated. The amount for each personal exemption in 2017 was $4,050.
The Child Tax Credit for dependent children under 17 was increased from $1,000 to $2,000. There is a new $500 credit for each dependent who is not a qualified child for the Child Tax Credit.
The limit on deductible donations has increased from 50% to 60% of your adjusted gross income (AGI).
Casualty losses have been eliminated, excluding those in presidentially declared disaster areas.
Employee business expenses have been eliminated as an itemized deduction.
The lifetime estate and gift tax exemption have more than doubled to $11,180,000 in 2018. Consequently, fewer estates will be subject to the estate tax.
C corporations now have a flat tax rate of 21%.
Expensing assets doubles to $1 million.
Most new farm equipment can be depreciated over five years rather than seven years.
Like-kind exchanges are limited to real property not held for resale.
Business entertainment has been eliminated.
Businesses other than C corporations, also referred to as pass-through entities are eligible for the 20% business deduction. Sole proprietors are considered a pass-through entity for the 20% business deduction. The deduction is limited to the smaller of 20% of the business profit or 20% of taxable income, whichever is smaller.
The 20% business deduction may be reduced when the income is within the threshold range. The deduction may be eliminated when the income exceeds the threshold. When income is within or exceeds the threshold, the 20% business deduction is calculated differently depending on whether the business is a specified service and/or business (SSTB).
As a result of the new tax laws, tax strategies can save substantial amounts of money. However, tax strategies are significantly more complex since the rules for the 20% business deduction must be taken into consideration to determine the best tax strategy.
David Zubler is a tax accountant and Enrolled Agent representing clients before the IRS with over 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can also be contacted by email at firstname.lastname@example.org