In the days leading up to the passing of the Tax Cuts and Jobs Act (TCJA), we saw a lot of headlines indicating the simplification this bill would bring. As clarification is still needed on some elements of the new tax law, time will tell how the tax filing process will change. In the meantime, here are some changes that will affect individuals and businesses:
For individuals, tax rates changed, the standard deduction nearly doubled, personal exemptions have been eliminated, and certain itemized deductions have been either eliminated or capped. Child credits have been expanded, while the availability to use net operating losses has been limited. Alimony for agreements entered into after December 31, 2018, will no longer be included as income or taken as a deduction.
What do these changes mean to your bottom line? Will you still get a refund, or will you owe at the end of the year? Will your tax filings be simpler?
The answer will depend on your personal situation. For some, itemizing deductions may no longer be beneficial, so filing will be simpler. Others may lose substantial deductions previously allowed. In either case, you should consult with a tax advisor to assess your specific situation. If you previously had your withholdings at a specific level so that you would get a certain refund or only owe a small amount, it’s very important to evaluate how the above changes will impact you.
For businesses, there is now a flat 21% tax rate, alternative minimum tax (AMT) is eliminated, net operating losses (NOLs) are limited, depreciation can be accelerated, the interest expense deduction is limited, and there is a new deduction for pass-through entities. As with individuals, the changes will impact each business differently. For some, the 21% tax rate is more than they currently pay, for others it will be a savings.
The changes with the Tax Cuts and Jobs Act impact everyone in different ways. It is important to reevaluate your tax situation for 2018, because it will be different than 2017. If you have questions or would like to discuss how the new tax law will impact you, please feel free to contact us for additional guidance.