Intro to the New Tax Laws of 2018
The Tax Cuts and Jobs Act is the biggest tax bill in over 30 years. The revisions carry lots of tax saving opportunities for the well informed. However, the new law (like the old law) is over 500 pages of undecipherable gobbledygook. As opposed to finding out how much you might owe at the end of this year, wouldn’t you like to know how to save thousands more right now? A very real chance to pay much less under the new law is here now. This year will truly highlight just how much you can save via Tax Planning. Of course if you wait until next year you will miss out on big savings from advice that is available today.
Has Your Accountant Called to Inform You of the New Tax Law?
Businesses and particularly business owners of any sized business fared much better than employees under the new tax law. Rates have dropped significantly more for corporations and their owners. If you have chosen the correct business entity formation, you’ll get a twenty percent deduction of your business income right off your personal tax through new Pass-Through laws. If not, you’ll need to get informed and get the right type of corporation right away. Employees however, continue to be taxed on all of their income, though there is a fix for that too. Additionally, there’s a lot of opportunity to work with corporate tax rates at 21% as opposed to the majority of personal tax brackets that attract a higher rate. If you haven’t already started a business, you are unnecessarily overpaying your taxes.
Under the new law, things get considerably less complicated for most types of corporations. There’s a single flat rate of 21% that applies from your first dollar of income to your very last dollar of income. However, the new Pass-Through laws required the creation of a new type of income called "Qualified Business Income". Doing your books right under the Act will allow you to deduct 20% of that Qualified Business Income from your personal taxes. Understanding and maximizing Qualified Business Income is very important, but not a simple task.
Other important corporate changes are both good and bad. Changes to deductions for business related entertainment you will not like. Imagine your surprise in January to find out all those business dinners you bought are not deductible at all. The good news is that the new law now allows 100% bonus depreciation on qualified property. You should make the most of that.
At the personal level, Standard Deductions are essentially doubling. The tradeoff; Personal Exemptions are now gone entirely. So depending on your situation these changes could be good or bad. Also, caps on State and Local tax deductions will affect residential status for big money makers in high tax states like California and New York. However, increased estate tax thresholds may compensate some.
”The level of interest in tax reforms is like nothing seen in decades” - Financial Advisor quote. Home Equity interest deductions no longer allowed unless specifically for the home; no more deduction to support the purchase of a fancy car. Mortgage interest deduction limits are also reduced. Real Estate Investment Trusts are big winners. Financial planning now calls for more use of tax-focused accountants.
As you can see, there are a lot of moving parts, especially for business owners. Don’t forget, there are threats as well as opportunities. If you’d like to save a ton on taxes, a once-in-a-lifetime opportunity is definitely here. However, you have to plan. We offer true, proactive Tax Planning to help you make the most of the new and old tax laws.