Tax Cuts and Jobs Act (TCJA)

The TCJA was signed into law a week ago, and after reading 500 pages of tax legislation, proposed regulations, notices, memos, FAQs, we have a pretty good idea of how it will impact your personal tax returns.

Below is a summary of important developments you should be aware of:

The standard deduction increased in 2018 for all filers. Due to the increase in the standard deduction and reduced usage of itemized deductions, you may want to consider filing a new Form W-4 so that your withholding is reflective of your actual tax liability under these new rules.

Perhaps the most lucrative, yet complicated change is a new deduction available for individuals that have qualified business income from a partnership, S corporation or a sole proprietorship. This is effective for tax years 2018 through 2025.

The new tax law increases the child tax credit to $2,000 per qualifying child. The phase-out threshold begins at $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers. The maximum additional child tax credit increased to $1,400.

For mortgages that originate in 2018, the interest deduction is limited to interest on debt up to $750,000 (formerly $1,000,000). Also, interest on home equity loans is only deductible if the funds are used for home improvements or traced to business, investment or passive activity expenditures.

529 plans are not just for college any more.  You can now allow for up to $10,000 in annual distributions for tuition at public, private, or religious elementary and secondary schools.

There is now an overall limit of $10,000 for property taxes and state and local income taxes (or sales tax in lieu of income taxes). This provision especially hurts taxpayers in highly taxed states like CA and NY.

The Alternative Minimum Tax (AMT) still sucks. The new law repealed the AMT for corporate taxpayers, but it still applies to individuals. Proactive tax planning is still your best way to minimize your exposure to the AMT using techniques such as income acceleration or deferral.

The Affordable Care Act (ACA, or “ObamaCare”) and your taxes. The TCJA repealed the shared responsibility payment (the penalty that the ACA imposes on individuals do not have health insurance) beginning in 2019. However, most other aspects of the ACA are still in place.

Contact Us Today

With the biggest changes to the tax code since 1986, Tolonen Tax & Accounting is hard at work keeping up with the changes that impact you the most. If you hear of provisions that confuse or concern you, please reach out online for a consultation or call 480-897-2300.