Tax law is confusing. When sweeping changes happen, like the Tax Cuts & Jobs Act, it is difficult to know how it will impact you and your business. We get it, so here are a few questions for you to ask yourself to see if you need to do some planning in 2018 so you aren’t hit with unpleasant shock on April 15.
- Are you a small business owner?
The business tax changes for 2018 are pretty sweeping. Bonus depreciation and Section 179 expensing are augmented, the domestic production activities deduction (DPAD) is gone, and a new qualified business income deduction for pass-through entities has been added. It is almost certain that at least one of these changes will impact small business owners.
- Do you cover your employees’ work expenses?
Until 2018, work expenses could be deducted by employees that itemized their taxes. This included things like business mileage, uniforms, continuing education and other non-reimbursed expenses. That is no longer the case. If you typically cover your team’s job-related expenses, you might be on the hook for more taxes this year.
- Do you typically take a home office deduction?
Stick with us here because this one is confusing. If you are an employee that works from a home office, you can no longer take that deduction in 2018. This is because the new tax law removed the ability to claim miscellaneous itemized deductions. However, if you are self-employed, you can still claim your home office deduction on your Schedule C as you always have.
- Will you pay more than $10,000 in state and local taxes?
Before the new tax law, you could fully deduct all state income, sales, and property taxes. Going forward, you can only deduct up to $10,000 of those taxes on your Federal return. For those that pay less than $10k in other taxes, this means nothing will change. But for those that pay hefty taxes, you will lose any amount you paid over $10,000 as a deduction.
- Did you adjust your withholding allowances?
The IRS adjusted withholding tables when the tax law was approved to fit with current allowances, which means some of you saw a small bump in take home pay earlier this year. However, the U.S. Government Accountability Office (GAO) recently put out a report that said that up to 21% of taxpayers are unknowingly under-withholding on their taxes. To add insult to injury, not only will these people have to pay an unexpected amount of taxes in April, they could be subject to penalties as well.
- Do you have children?
Finally some good news. The Child Tax Credit was doubled to $2,000 per child versus $1,000 in 2017. The income limits to qualify for this credit were also raised to $200,000 Adjusted Gross Income (AGI) for single status and $400,000 AGI for married couples. In many cases, this extra credit may compensate for the loss of the personal exemption that you could take for yourself, your spouse and children in the past. Oh yeah, we forgot to mention that the $4050 personal exemption that you took in 2017 for you, your spouse and dependents was eliminated too. So good news for parents and bad news for those without kids. (And no, your fur kids still don’t qualify.)
Obviously, this is just a few of the changes you can expect. This is the biggest tax reform in many years, so if you have any questions at all, or want to do some pre-planning for 2018 taxes, let us know.