Did you see your 2018 tax return different than 2017?
Did you receive less refund in 2018 than 2017? This might be explained by the
changes in new tax law that was passed in December 2017 by United States
Congress called Tax Cuts and Jobs Act (TCJA). Understanding tax can be
difficult for many tax payers, particularly when there is new tax law enacted is less than two years old infant. This law changed many provisions for individual tax payers. Interesting fact about TCJA is, individual changes are temporary and will reverse
back to 2017 tax year rule after year 2026 but corporate tax rates changes are
permanent.
So what changes TCJA brought to my tax return?
There are many changes but let’s talk about some of the
major ones that might impact majority of tax payers and this might have
something to do with your 2018 refund amount being different than 2017:
Standard deductions almost doubled:
This is good news for most of the tax payers who used to
take standard deductions. New standard deductions for single filer is $12,000
and $24,000 for married filing jointly. If you qualify for head of household,
you get $18,000 standard deductions.
Personal Exemptions:
This is bad news for most parents with kids. Each person in
the tax return used to get little more than $4,000 deductions against your
taxable income. Since this deduction is discontinued until 2026, if you have
two kids and parents, you lost about $16,000 deductions.
Child and dependent Tax Credits:
This is good news for most parents with kids under the age
of 16. You can get up to $2,000 child tax credit per dependent child. This credit
helps to offset your tax bill directly. So, this is good to reduce your tax
liability. Not only your children, if you have any qualified dependents such as
your aged mom or mother-in-law, you get $500 dependent credit that will also help
to upset your tax liability.
Qualified Business Income Deductions (QBI):
This is good news for people who have side gig together with their
regular job or just run small businesses. This provision gives you about 20% qualified
deductions on your taxable income. This deduction is not straight forward.
There are limitations attached to it. So, if you are not tax expert, leave this
to your CPA or tax payers or the tax software will guide you through series
of questions for you to complete this deduction.
SALT Cap on deductions:
SALT stands for States and Local Taxes. This covers all
state income taxes, local income taxes and property taxes. If you live in one
of the states where you pay high sales and local taxes, TCJA might be bad news
for you. I had lots of customers in 2018 who had way less itemized deductions
due to these limitations. You can only deduct up to $10,000 of your states and
local taxes. These deductions are part of your itemized deductions. Due to these
limitations, if you live in states like New York and California, your taxable
income is way higher now than in 2017 and before.
Moving Expenses:
This is bad news for employees who must pay moving expenses
on their own. Moving expenses deductions are discontinued until 2026 for most of the tax
payers other than military members who are ordered to move to a new permanent
station.
Miscellaneous deductions subject to the 2% limit:
If you used to take job related deductions to reduce your
taxable income, this has been discontinued. This includes all job-related
expenses such as union dues, employee home office expenses, tools for your job
etc.
References/Further info:
If you would like more information about these changes, feel
free to refer to the following resources:
Journal of Accountancy: https://www.journalofaccountancy.com/issues/2019/jan/tax-season-2018-tcja-changes.html
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