5 Frequently Asked Questions and Answers about the New Tax Law

The “Tax Cuts and Jobs Act” Explained

The $1.5 trillion tax reform legislation known as the “Tax Cuts and Jobs Act” represents the biggest change to the tax code since 1986. As we approach the end of the year and prepare to file 2018 tax returns, many taxpayers are left wondering how the tax law will affect them.

While the implications for individuals and business are broad, Anne Redgrave, a federally-licensed, enrolled agent who leads Healy Tax, LLC, answers 5 frequently asked questions about the new tax law:

1. What happened to the standard deduction and personal exemptions under tax reform?

The standard deduction nearly doubled. It rose from $6,350 to $12,000 for a Single filer and from $12,700 to $24,000 for those Married Filing Jointly. Meanwhile, personal exemptions were eliminated. This change will be partially offset for taxpayers with dependents, because the child tax credit increased from $1000 to $2000 and a new credit of $500 for “other dependents” was added.

2. Is the interest on home mortgages and home equity loans deductible?

Home mortgage interest is still deductible, although the interest is limited for mortgages over $750,000 for homes purchased after Dec 15, 2017. The interest on home equity loans is deductible only if the loan was used to buy, build, or substantially improve the home secured by the debt.

 

3. I usually make year-end contributions to charities. Can I still deduct charitable contributions?

Yes.  In fact, the limit for contributions increased from 50% to 60% of your adjusted gross income for those who itemize. Because of itemization changes, however, taxpayers may wish to strategically time their charitable giving.

4. What is the qualified business income deduction?

It is a new deduction, for owners of sole proprietorships or pass-through entities such as partnerships, S Corps, and Trusts, of up to 20% of net business income from a trade or business. Owners of rental property and members of the sharing economy, such as Uber/Lyft drivers, may also benefit from this deduction. Possible limitations depend on the taxpayer’s taxable income, type of business, and amount of W-2 wages and Unadjusted Basis Immediately After Acquisition (UBIA).

5. Are there year-end tax planning strategies I should consider to optimize my tax position under the new tax law?

Due to the new tax rates, taxpayers should check their withholding.  The IRS has a new online calculator to calculate this.

Taxpayers who itemized in the past may find it beneficial to do charitable giving tax planning. Giving gifts of long-term appreciated assets and/or making gifts directly from your IRA for those over 70.5 years of age, are ways to reduce taxes for those who do not itemize.

Any self-employed person or owner of a pass-through entity such as a partnership or S Corp should consult a tax professional in order to maximize their potential 20% Qualified Business Deduction.

For most taxpayers, the bottom-line is their overall tax bill will probably decrease, but tax preparation and year-end planning may not be simpler. That’s where we can help.

Healy Tax, LLC can help you navigate the year-end tax planning landscape in 2018, as well as tax preparation in 2019. Here’s how:

• Register for the hour-long tax seminar I’m hosting at Healy Group on November 15, 2018, at 7:30 am or 4:30 pm addressing changes in the new tax law for self-employed persons or owners of pass-through businesses.
• Contact me at aredgrave@healytaxllc.com or call 574-271-6000 x1040 to schedule a meeting to review year-end tax planning strategies tailored to your unique situation.

About the author:

Anne Redgrave recently joined Healy Group to lead Healy Tax, LLC. Anne is a federally authorized tax practitioner who is enrolled to represent clients before the Internal Revenue Service for tax issues.