We have had a lot of questions coming in from all over about the new tax act and how it affects everyone. The short answer to that is “it depends.” There are a lot of very intricate changes to the tax code through this Act and each taxpayer is going to be affected differently. If you have specific concerns, we encourage you to call our office. We are happy to chat with you or set-up an appointment to walk through things if you feel that would help you.
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With this article, we’d like to touch on a few high points of the bill which include items taxpayers may want to consider in the coming days.
First, for the majority of taxpayers, you will be paying tax at a lower rate in 2018. The brackets have stretched some and the rates themselves have dropped so for most people your tax burden in 2018 will be less than in previous years. Instead of having everyone complete a new W-4 like NC had us do a few years back, the IRS has “built” the new rates into the tax tables themselves. So your federal withholding was likely reduced in early February of this year when the new tax tables were issued. The IRS’ hope is that the withholding reduction corresponds well with your actual tax reduction so that you don’t end up being underwithheld. You can always complete a new W-4 and adjust what is being withheld so it never hurts to run a projection and make sure you are in good shape.
The new law will expand the existing child tax credit in the following ways: The credit amount will be expanded from $1,000 per qualifying child to $2,000. Children under age 17 at the end of the year will be eligible for the credit, matching the old law. There will be a new $500 credit for qualifying dependents not eligible for the $2,000 child credit.
The new law will also eliminate the personal exemptions, expand the standard deduction and change or eliminate many elements of itemized deductions. For some taxpayers the net of all these changes added together will be basically the same end result as prior years, but some taxpayers will see a substantial difference in their 2018 tax return. If you have not had a 2018 tax projection run yet and would like us to assist you with that, please give us a call.
For business there are some pretty significant and exciting changes, the biggest of these being the 20% business deduction. For business owners (sole proprietors, S corporation shareholders and partners) there will be a deduction taken on the owner’s tax return for 20% of their share of the earnings from a business. Unfortunately, as with most tax laws, this 20% deduction will not apply in all circumstances due to limitation and exceptions in the law.
One final significant change for businesses will be the ability to write off up to $ 1,000,000 of the cost of qualified fixed assets acquired and placed in service in 2018. This can provide an excellent source of deductions to reduce your 2018 taxable income event if these assets are purchased this month, December 2018.