The sweeping tax plan that Congress passed last December includes lower tax brackets and a nearly doubling of the standard deduction. But plenty of taxpayers who are starting their tax planning for 2018 are hitting complications, due to several provisions that remain unclear.
Chances are you too have numerous questions whirling around about how to apply the new tax rules while finding tax savings opportunities. If you own a business, you can get a quick refresher from our March blog article. For those starting their tax planning, here is a quick run-down of what you need to keep in mind. If you have additional questions, please schedule a time to meet with us.
- Entertainment is no longer deductible.For example, if you take a client to a ball game, the meals can be deducted but only if paid separately from the tickets.
- Miscellaneous itemized deductions are eliminated. Any unreimbursed employee expenses and investment advisory fees are no longer deductible.
- The child tax credit doubles to $2,000 per qualifying child. Up to $1,400 of the child tax credit can be received as refundable credit (meaning it can go toward a tax refund).
- Hobby expenses are no longer deductible. But you must report ALL income!
- State and local taxes are capped. (SALT) is now limited to $10k starting in 2018 versus today where there is no limit.
- Entitled deduction for business owners. The Qualified Business Income Deduction is available to most business owners. Are you able to take advantage of this new deduction? If so, you may want to increase/lower your depreciation, increase your retirement contributions, set up a Qualified Benefit Plan, and increase or lower your payroll.
- Partnerships face new audit rules for tax year 2018. These rules will assess incremental taxes, penalties and interest at the partnership level. Can you opt out? Are the implications? Many partnerships can elect to follow alternative rules. If you own any Publicly Traded Partnerships, you may be subject to the new rules if the partnership cannot opt-out.
- Home mortgage interest paid on new loans deductible has changed. The new tax law allows you to deduct interest on up to $750,000 of mortgage debt incurred to buy or improve a first or second residence. Interest paid on home equity loan or home equity line is limited to building and improving your home.
The Bottom line
These aren’t the only changes to the tax code that Congress passed with the Tax Cuts and Jobs Act last December. But they’re some of the most influential changes for most tax-payers.
As you plan and prepare for your 2018 income taxes, consider how these changes will impact you and what you can do to take advantage of some of the positive changes. Need advice? Contact our offices today to schedule a meeting.