Make your connection with the “Top 10” Tax Cut and Jobs Act Changes and be prepared for 2019!

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Here are the changes from the Tax Cut and Jobs Act (TCJA) that will impact “most” Individuals when they prepare their 2018 Tax Returns in 2019:

  1. Reduction of Individual Tax Rates:  there are seven (7) new tax brackets:  10%, 12%, 22%, 24%, 32%, 35% and 37%
  2. Increase in Standard Deduction:  practically doubled and as a result, many Taxpayers will no longer itemize.
  3. Cap of State and Local Taxes (SALT):  the deduction for all state and local taxes combined cannot exceed $10,000 (this includes property taxes).
  4. Alimony:  end to a deduction for alimony payments by the Payer Spouse and corresponding inclusion in income of the Recipient Spouse in any divorce or separation instrument executed after December 31, 2018.
  5. Mortgage Interest Deduction:  lower dollar limit on mortgages qualifying for the home mortgage interest deduction. Beginning in 2018, Taxpayers may only deduct interest on $750,000 of qualified residence loans.  Interest on home equity loans will no longer be deductible unless the loan is used for the purpose of improving a current home. 
  6. Itemized Deductions:  eliminated, phased out, or restricted; therefore, most Taxpayers will not itemize. 
  7. Charitable Contributions:  the National Council of Non-Profits estimates that 87% of Taxpayers will not be able to make charitable contributions due to the elimination of itemized deductions and increases in the standard deduction. 
  8. Affordable Care Act:   the individual penalty for Taxpayers who do not have health coverage is eliminated beginning with tax year 2019 tax returns. 
  9. Pass-Through Deduction:   owners of Pass-Through entities that have taxable income below a lower income threshold could potentially qualify for the full deduction.  Other service professional’s income may not qualify at all.  For instance, the “owners” of an accounting firm, a law firm, a yoga business or a performing arts business could have to pay the regular individual tax rate on their salaries and their distributable profit.  While the owners of a manufacturing business would have to pay the individual regular tax rate on their salaries and the lower rate on their profits because the rule was written to support capital intensive manufacturing businesses. 
  10. Child Tax Credit:  doubled from $1,000 to $2,000

Don’t be a victim of your own making

Changes to the Individuals from the Tax Reform are set to expire in 2025.  Taxpayers will begin to see the changes when they file a 2018 Tax Return in 2019.  Taxpayers ought to be prepared by consulting with their tax specialist.  Taxpayers can utilize the IRS Calculator available at: https://apps.irs.gov/app/withholdingcalculator/  as a first step.

 

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