As hard as it is to believe that December is here and 2018 is nearly over, it’s the truth. For a lot of families, the news on the new tax laws bodes well, but the “experts” on television have made such a fuss that getting the truth out of the buzz words can be extremely difficult.
Here’s some straight talk…
The new tax law delivers a host of benefits to taxpayers at all levels. For starters, not only is the top rate lowered from 39.6% to 37%, but that rate also kicks in at a higher income level. And, note that whatever new bracket you fall in, more of your taxable income will be hit with lower rates.
A hallmark of the new law is the near-doubling of the standard deduction to $12,000 on single returns, $18,000 for head-of-household filers and $24,000 on joint returns. Congressional analysts say bulking up the standard deduction will let more than 30 million taxpayers avoid the hassle of itemizing write-offs on their tax return because the bigger standard deduction would exceed their qualifying expenses.
Starting in 2018, the $1,000 tax credit for each child under age 17 is doubled to $2,000. Additionally, the new law significantly increases the income phase-out thresholds so that more higher-income families will pocket child credits.
The law offers a different kind of relief to individuals who own pass-through entities—such as S corporations, partnerships and LLCs—which pass their income to their owners for tax purposes, as well as sole proprietors who report income on Schedule C of their tax returns. Starting in 2018, many of these taxpayers can deduct 20% of their qualifying income before figuring their tax bill. For a sole proprietor in the 24% bracket, for example, excluding 20% of income from taxation has the same effect of lowering the tax rate to 19.2%.
Now, all of that is great news, but it does come with one big “gotcha” and that’s the fact that, to maximize your savings and refunds, the smart money is on making moves before December 31st.
In years past, of course, retirement contributions after the fist of the year helped many taxpayers to ensure a refund or to mitigate their tax bill. This year, though, with the various caps on state, local, and property taxes, I’m recommending to all my clients to make moves before December 31st.
Come in and let’s discuss if the new tax laws will have any negative effects on you and let’s stop that before it’s too late.