This year’s tax preparation season is all about the new tax law and how it applies to this year’s tax return. All taxpayers seem to have questions related to the new increased standard deduction, elimination of the personal exemption and the new tax rates. Taxpayers are in the dark regarding the effects of the new tax laws and how they’re affected individually. Generally speaking, the new laws are favorable to individuals and the self-employed, but the final result can only come from the completed tax return. While everyone’s tax situation is different there are several new tax laws that apply to all taxpayers.

Tax advantaged savings accounts: Do not alter your tax plans to contribute to your retirement through IRA’s and 401-k’s. Continue using other tax-advantaged accounts like Health Savings Accounts (HSA’s) and 529 education savings accounts. None of these tax benefits go away.

Individual mandate penalty: While set to zero in 2019, the penalty for not having health insurance stays in place during 2018. So keep your health insurance or plan to pay a penalty.

Alimony: The deductibility for alimony paid is in place for 2018, but is eliminated in 2019. Alimony received is also impacted.

New lower tax rates: While there are still seven tax rates, most of the rates have been lowered. The marriage penalty built into the income brackets has also been eliminated for all except the highest income earners.

Newly revised deductions: The standard deductions have been nearly doubled, the personal exemption eliminated, and allowable itemized deductions dramatically altered.

Small business: The new tax bill introduced a 20 percent income reduction calculation for S Corps, partnerships, and sole proprietors. 100 percent first year bonus depreciation is available once again along with a $1 million limit for Section 179 expensing.

Standard Deductions for 2018:

Traditional IRA, Roth IRA $5,500 (+$1000 50 and over)
401 (k), 403 (b) $18,500 (+$6,000 50 and over)
Simple IRA $12,500 (+$3,000 50 and over)

Gone. Gone. Gone.

  • Personal exemptions
  • Itemized deductions phase out rules
  • Additional child tax credit
  • Miscellaneous itemized deductions
  • Most theft and casualty losses (except federal disaster areas)
  • Deduction of home equity interest
  • Moving expenses (except for qualified military)
  • Alimony paid deduction and alimony received income (beginning in 2019)
  • Individual responsibility penalty (beginning in 2019)

There are many other tax law changes such as State and local tax deductions limited to $10,000, elimination of Unreimbursed Employee Expenses along with a redefined Kiddie Tax. As you read this article today, many of you were affected by one or more of the tax law changes. The new tax law enacted in December 2017 is the greatest overhaul of our tax system since 1986. Tax preparers have spent numerous hours studying the new tax laws, attending tax seminars covering the changes and preparing the best they can to be of best service to their clients this tax season.

The ever-changing laws make it difficult for anyone to keep up, let alone someone who is trying to create a business. Luckily, CPA’s know their stuff. A CPA doesn’t just address people by their name, but they also have in-depth knowledge of different industries enabling them to provide trusted, sound advice. Contact yours today.