5 Changes in the Tax Cut and Jobs Act that You Need to Know
With tax season approaching, I have found that many of my clients are concerned with how changes in the tax cut and jobs act will affect them. Here are 5 things you need to know going into this year's tax season.
-The child tax credit is being doubled in 2018.
The recently passed tax reform bill doubles the amount of the child tax credit from 1k to 2k per qualifying child. The phase out levels are also higher at 200k for single filers and 400k for married filing jointly. This means more households will qualify!
-Itemized deductions are virtually eliminated for salaried employees.
Unreimbursed work related travel, meals, training, subscriptions, home office deduction, expenses related to a job search are no longer deductible and was intended to be replaced by the higher standard deduction, which is 12k for single filers and 24k for married filing jointly. Charitable deductions and medical expenses are still allowable itemized deductions and many tax professionals are recommending bunching as a tax savings strategy.
-Small business owners get a 20% deduction for “pass-through” income.
Individual business owners pay taxes on their firm’s income on their personal income tax return. (LLC's, S Corp, Sole Proprietors). In order to help small business compete with corporations who now have a 21% tax rate, this provision was added to provide some relief. Consider starting a business!
- Home equity loan interest deductions are eliminated UNLESS those loan proceeds were used to improve your home
. Also the new limit on home loan principal available to deduct interest on is $750k down from $1m. If the loan is in place prior to December 15th 2017 and closed by April 15th 2018 the old limits still apply. The new 750k limit applies to acquisition debt and home equity loans combined.
-Taxpayers are only allowed to deduct up to 10k of state and local income tax, real estate tax and sales tax combined.
Many New Yorkers itemized in the past mainly because the state income tax deduction was so large. Blue states are affected negatively by this change as we tend to have higher income and property taxes. Those of us who live in low property or state tax areas could benefit from bunching the property or state tax payments if prepayments are allowed to itemize and get the 10k deduction in alternating years.