The 2 biggest changes that you will notice in the tax law

With less than two weeks in the historic year of tax reform, many taxpayers may be getting a little nervous about what the real impact of Tax Reform 2018 tax law will be. “Most people want to know what the biggest changes are and how they will be affected by them,” says Renee Moore, CPA, at TMH CPA and Accounting Firm.TMHCPAS.com

“There are a couple of really big areas that will affect people the most,” continues Renee. “One is the limitation of state and local taxes (SALT). That means that in the past taxpayers could include state and local property, income or sales taxes as itemized deductions. Now, taxpayers are limited to claiming an itemized deduction of $10,000 in combined state and local income, sales and property taxes. This is, in theory, offset by an increase in the standard deduction, and many people may find themselves taking the standard deduction this year when they normally would have been able to itemize. The SALT limitation will be significant.

“Another big change is the qualified business income deduction, referred to as a pass-through deduction. Pass-through businesses are generally small businesses (also some big firms) that don’t pay the corporate income tax. Instead, the owners report the corporate profits as their own income and pay taxes based on the individual tax rates along with their regular personal income tax. Some of the common types of pass-through businesses are partnerships, LLCs (limited liability companies), S corporations and sole proprietorships. In the past all pass-through business owners’ income was previously subject to regular personal income tax rates. Under the new law, pass-through business owners can deduct up to 20 percent of their qualified business income from a partnership, S corporation or sole proprietorship. Individuals with taxable income less than $157,500 and married couples with taxable income less than $315,000 are eligible for the full deduction. This is not as simple as it sounds and there are a lot of variables,” continues Renee.

“People who don’t itemize may benefit the most because the standard deduction has doubled over last year. This is particularly true for middle income families who don’t have a lot of children because the personal exemptions went away with this tax law.”

The verdict may still be out on how the new tax law will affect individuals and businesses and the best way to understand and prepare for the changes is by contacting your accountant now – before the end of the year. The main thing to remember is that you should plan accordingly for taxes and get filing information early.

TMH CPA and Accounting Firm has a strong team of CPAs and accountants who know the tax law. Learn more at TMHCPAS.com.