1. Self-Employed Persons – A Tax Deduction
One of the most significant sections of the recent tax reform is the addition of a Qualified Business Income Deduction, which provides a reduced tax rate to certain businesses. This deduction may be as great as 20% of the business net income.
CALCULATING THE ACTUAL DEDUCTION CAN BE COMPLEX.
However, calculating the actual deduction can be complex as Congress provided several factors, including income, the profession, amount spent on wages and property acquired as factors in determining the deduction.
2. Owning a Home
Owning a home in California, New York and in other high property value states has just become more expensive.
Deductions for state income and local (sales and property) taxes paid are now capped at $10,000 combined, which will profoundly impact taxpayers in states with high home values and property taxes. In California, for instance, the residents pay some of the highest state income taxes in the country. This means that their tax deductions for the taxes they pay are severely limited; thus, their tax bill will likely increase where applicable.
3. Having Children
Under the previous tax law, families could claim a $1,000 credit for every child under the age of 17. This credit began to phase out for couples earning more than $110,000 per year. The credit has now been doubled to $2,000 per child, and the phase out threshold has been raised from $110,000 to $400,000. For people who don’t earn enough in a given year to pay taxes, they can still claim the credit, but their child tax credit refund is now limited to $1,400 per year. Note that the new law also changes the guidelines for 529 education savings plans, which may now be used to pay tuition at private schools and religious schools, and to cover homeschooling expenses.
4. Getting Divorced
The new tax law makes a fundamental change in the way that alimony is taxed. In any divorce commenced after December 2018, the spouse paying alimony cannot deduct it and the spouse receiving the money no longer pays taxes on it. The IRS claimed that 361,000 taxpayers had claimed an alimony deduction in 2015; this new tax law eliminates that deduction. This may make negotiations regarding spousal support more contentious.
THE NEW TAX LAW GAVE MUCH MORE THAN IT TOOK AWAY.
All of these big changes may require additional effort as you look to filing next year’s tax return, but don’t panic — overall, the new tax law gave much more than it took away, if you know how to take advantage of it! The tax penalty for lack of health insurance is eliminated, and individual tax rates are lower across the board, standard deduction amounts and the child tax credit increase, leaving more money in your pocket. However, if you rely on itemized deductions for things like state and local income tax, unreimbursed business expenses, casualty losses and spousal support [alimony] payments — all of which have been affected — to reduce your taxable income, you need to know how these changes affect you.
Thirty years ago, Steve founded what would become Moskowitz LLP (www.moskowitzllp.com) to help businesses and individuals navigate the complex tax code. Today, Steve and his team offer top-notch client representation because they want the new tax law to work for you. Contact Steve and his team today at 415-394-7200, or visit www.MoskowitzLLP.com to schedule a consultation and learn how to use the new tax law to legally minimize or eliminate your taxes if you qualify
Source: HER Magazine