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New Tax Law
Question:
So...Exactly WHAT am I supposed to be doing with regard to the new tax law?
Answer:
First of all Happy New Year and welcome to 2018. It is gonna be a good year!!! Regardless of all other factors from this point forward, we will indeed have a new tax code for 2018. I am totally sure you have heard more than you would normally choose to hear about taxes and will undoubtedly continue to hear more. Just in case, here is a summary of the biggest changes…
- New lower tax rate brackets at 10%, 12%, 22%, 24%, 32%, 35%, and a top rate of 37%,
- Doubling of the standard deduction to $12,000 for singles, $24,000 for joint filers,
- Elimination of personal exemptions,
- Increasing the Child Tax Credit from $1,000 to $2,000,
- Deduction for State and local taxes limited to $10,000, and
- Mortgage interest limited on new mortgages to maximum indebtedness of $750,000.
Keep in mind that all of these changes will only be applicable beginning with the 2018 tax year. So the most important thing to do now is to simply keep your ear to the ground as the Treasury department does its best to implement AND interpret the new plan. Make sure you stay connected for updates throughout the year, and as always do your best to let your voice be heard.
For a vast majority of taxpayers, the new tax bill will represent a tax cut allowing the typical family more in take home pay. Perhaps the most high profile change is the reduction in the corporate tax rate structure to a flat 21% rate, down from a top tax rate of 35%. Congress also provided a reduction in business tax for sole proprietors and other “pass through” entities with a Qualified Business Income deduction which is a brand new concept. This deduction is calculated as 20% of the net income from the business as long as total taxable income is below $157,500 for single taxpayers and $315,000 for married filing jointly taxpayers.
As you might guess this is a significant reduction is tax intended to provide businesses with more capital for investing in new equipment, new people, new technology, all with the goal of creating more jobs and creating more economic growth. Obviously, time will be the best judge of success, but for now, if you will benefit from this new deduction now is the time to prepare for that new investment. If you have been waiting to add that new oven at your restaurant, or adding that new assistant accountant or associate attorney, now is the time to take advantage of this unique point in history. Don’t wait until you actually prepare your tax return in April of 2019, do some pencil pushing and figure out exactly how much will be available to reinvest in your business. Now is the time to make a difference!
As always, don’t forget that you are not alone. Bookmark our website at NASE.org as well as the IRS website at IRS.gov. Follow us on Twitter @NASETweets and @NASEKeith. When you have a question, you will always be able to find the help you need.