The tax law reform that went into effect in January of 2018 was the biggest reform passed in the last 30 years. It will affect both individual and business returns in multiple ways.
If you’re curious as to how these laws may change your tax return, we have you covered!
There are several large changes that you’ll be seeing this spring on your tax return, and some are more noticeable than others.
For 2018 the tax brackets have seen significant changes that will affect how much you owe compared to the previous year.
These rates will change again for 2019.
Personal and Dependent deductions, the per person deductions of $4050 on your 2017 return, have been suspended, and will not be appearing on your 2018 return.
However, the standard deduction has been significantly raised.
For healthcare, the allowable medical deduction floor has been temporarily lowered from 10% of out of pocket expenses to 7.5%. In 2019 the tax penalty for not having health insurance is eliminated.
The Child Tax Credit has been doubled from $1,000 to $2,000, and the income at which these deductions phase out has been raised from $110,000 for Married Filing Jointly, to $400,000.
The amount of State and local Income, Property, and sales tax that you can deduct has been limited to $10,000, where in the past it was generally fully tax deductible.
Owners of small businesses or Schedule C Sole Proprietors will also be seeing some changes in their tax returns this year.
In 2018 employers can no longer deduct expenses for: activities generally considered to be entertainment, amusement, or recreation; membership dues for clubs organized for business, pleasure, recreation, or other social purposes; or a facility used in connection with the above items, even if the activity is related to the active conduct of trade or business.
This limits the deductions you can take for home office expenses and the entertainment half of meals & entertainment.
You can, however, expense much more depreciation under the new laws, up from $500,000 to $1 million. You can elect to expense the cost of any section 179 property and deduct it for the year it was placed in service.
Some small business and sole proprietors may now deduct up to 20% on certain business income as well as certain dividends and rental property income under section 199A. For more information refer to the IRS FAQ.
Disclaimer This article presents general information and is not intended to be tax or legal advice. Refer to IRS publications and discuss possible tax deductions with your tax preparer.
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