It has now been a number of months since the Tax Cuts and Jobs Act (TCJA) passed, but many are still confused on how it will affect them. Many of our clients got a look at the crystal ball to see what their situation may be when they file in the spring of 2019, but what does the TCJA mean practically for your tax planning?
Individuals that once itemized on the schedule A may not find it to be necessary because the standard deduction was increased to $12,000 for single filers and $24,000 for joint filers. For these folks, the new tax strategy will be looking for ways to move deductible items that were on the Schedule A to other parts of the return. Some strategies include:
- Medical expenses can reduce income by properly using Health Savings Accounts.
- Taking advantage of a home office you can move part of your property tax and mortgage interest to be deducted against your business or rental property.
- Charitable deductions paid out of the required minimum distribution of your IRA can be excluded from income.
One thing every W2 taxpayer should be doing soon is to look at their withholdings from their wages. There have been reports from the IRS that the payroll schedules are incorrect and even though most people will be paying less tax; they are looking at the possibility of many taxpayers owing after they file their 2018 return.
Qualifying businesses will be seeing up to a 20% deduction of their net profit on their personal return. This is a new deduction based on Qualified Business Income (QBI). The calculation is very complicated and can be limited by many factors such as wages paid, total income and the type of business you run. For all businesses, you should be talking with your tax professional about how this will affect you. This new QBI deduction also changes the dynamics in your choice of entity for tax purposes.