Recent Posts:

---

2018 Changes

---

---

View AllSubscribe

2018 Changes

Your 2018 tax return will look much different than your 2017 return, and that’s not just due to a new job or the birth of a baby. Congress passed the largest piece of tax legislation in three decades and we will see many changes from the legislation come tax time.  I will go over some of the key features from the 2018 tax law that will affect our clients.

• Tax brackets will change. There will still be seven of them. Tax brackets in 2017 were: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. 2018 tax brackets are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
• The income brackets pertaining to these new brackets have also changed. Only taxpayers with income over $600,000 ($500,000 if single) will pay the highest tax rate of 37%
• The standard deduction is nearly doubled what it has been in the past. For joint filers it will be $24,000, up from $12,700. For single filers it will be $12,000, up from $6,350.
• BUT, the new tax law will eliminate the personal exemption. In the past, every family member got around a $4,000 reduction from income. (Sometimes limited by high income earners)
• The enormous increase in standard deduction is going to make it more difficult for some taxpayers to itemize deductions (i.e. surpass this standard deduction amount). We still recommend keeping up with all of your medical expenses, charitable contributions, and mortgage interest. There are also some other limitations on itemized deductions for 2018.
• For itemized deductions, state income taxes and property taxes are limited to $10,000. So if you pay $5,000 in real estate taxes on your primary home, $15,000 in state taxes on your W-2, and $10,000 real estate taxes on your vacation home, you will only be able to deduct $10,000 of this $30,000. In the past, this has not been limited.
• If you have a child under the age of 17 who is a dependent, congratulations! You get an automatic $2,000 child tax credit per child if your income is below $400,000. In the past, the child tax credit was just $1,000 and was unattainable if you made over $110,000. So this is pretty significant. There are also some dependent care credit changes if you pay for daycare, nannies, or after school care. So be sure to ask us about these as well.
• Maybe the largest difference that will affect small business owners is the new Qualified Business Income Deduction.
  • 20% deduction on qualified business income.
  • This is phased out for high income earners
  • “Qualified business income” includes rental income, pass through income, and Schedule C income.

**There are many nuances to this new rule with income phase outs and gotchas, so be sure to discuss each unique tax situation with us.

BOTTOM LINE if you’ve read all of this: everyone will see changes, not just the business owner. Overall, the more you earn, the more changes you will see, with limits of course.