Itemized deductions versus the standard deduction

The TCJA  doubles the standard deduction, but suspends the personal exemptions and virtually eliminates many of the itemized deductions. The law temporarily eliminates miscellaneous itemized deductions subject to the 2 percent floor and limits the home mortgage interest deduction to home acquisition debt of up to $750,000.

With these changes, some taxpayers may see a lower taxes. Some taxpayers that itemized in the past may not for 2018. Contact us is you need to run the numbers for your tax situation. If the results are grim, you may need to adjust your employer withholding (Form W-4) and/or quarterly estimated tax payments.


Bunch charitable contributions

The TCJA temporarily increases the limit of cash contributions to public charities from 50 to 60 percent of adjusted gross income (AGI).  The only problem (as mentioned above) is that the double standard deduction and itemized changes will leave many taxpayers left out. One solution is to bunch or increase charitable contributions in alternating years, or set up donor-advised funds. 

Watch out for home equity debt interest

The TCJA allows for home equity debt interest if the funds were used to buy or substantially improve the home that secures the loan. Taxpayers must keep good records to ensure that the proceeds were used in this manner, payment to credit card or other personal debt is not allowed (even if prior to 2018).


Revisit 529 qualified tuition plans

The TCJA revises earnings in a 529 college savings plan and allows for paying tuition at an elementary or secondary public, private or religious school, up to $10,000 per year. If you fall in this boat, it may be time to revisit their 529 plans. 

Maximize the qualified business income deduction
​
​And of course last but not least the QBI deduction (from our last post) for small business owners. Be sure to contact us for steps how this deduction can save your hard earned dollars

Recently the IRS released "Notice 2018-64" regarding the new Qualified Business Income (QBI) 20% deduction. Now I won't go into great details regarding the notice, but it basically provides small businesses with a method for calculating W-2 wages for the purposes of determining if a small business qualifies for QBI. The notice outlines the regulations and specifies which business types qualify for the deduction. These regulations are proposed regulations (may be subject to change) and tax payers and professionals will need to rely on this guidance until final regulations are published.

The new QBI regulations will affect a great deal of small business owners in more ways than one. Some questions that small business owners need to address include:

• What trades or businesses qualify for the deduction
• How much W-2 income can I make to qualify for the deduction
• What happens if my income is over the deduction threshold
• Have I selected the correct business entity structure

These are just a few of the questions small business owners need to address regarding the QBI deduction. The dog days of summer are a great time for small businesses to address these questions. By taking a little time now to do a bit of tax planning, a small business owner can ensure that there are now surprises when tax time rolls around.

We are currently developing a presentation that will go into greater detail regarding the QBI deduction and what you need to do as a small business owner to protect your hard earned dollars.

Happy New Year! With the start of 2018, we have fielded a great deal of questions regarding the Tax Cuts and Jobs Act. We figured we would put out a short post to address the most important ones

1.  When will the tax changes take effect? 
​       
The bill takes effect on January 1, 2018, thus when you file your 2018 taxes (in 2019) you will see the results of the tax changes. W-2 employees will see changes in their paychecks federal withholding in February 2018.
 
2.  How much will the tax changes save a taxpayer?

The short answer is, it depends...what your total income is and where your income is derived. Also other factors can play a role in determining how much you will save. 

3.    Do I need to do anything to change my withholding?

According to the IRS regarding withholding changes:

“We anticipate issuing the initial withholding guidance in January, and employers and payroll service providers will be encouraged to implement the changes in February,” said the IRS. “The IRS emphasizes this information will be designed to work with the existing Forms W-4 that employees have already filed, and no further action by taxpayers is needed at this time.”

These are just a few of the top questions we are hearing from taxpayers, feel free to contact us if you have any questions regarding the Tax Cut and Jobs Act.