It’s official! The Tax Cuts and Jobs Act of 2018 has officially been signed into law. I know, tax isn’t the most exciting topic out there, but like it or not, it will affect you.
Adam Nubern, CPA joins us back on the show to discuss some of the more impactful changes we should be aware of. There are more changes to the tax code then what we discuss, so it’s important you speak to your tax professional if you have any questions about your specific situation.
As a reminder, the tax changes will affect the taxes you file in April of 2019 for income you made in 2018. When you file your taxes this year for 2017, it will be business as usual.
For you visual learners, I’ve prepared some extra notes to help you understand some of the topics we cover.
1. New Tax Brackets (03:10)
The tax brackets for 2018 have been updated. Virtually all taxpayers can expect to be in a lower tax bracket for 2018, with a few exceptions. It’s important to note that just because you may be in a lower tax bracket, it doesn’t necessarily mean you’ll pay less tax. Some of the other tax changes will be more impactful!
2. Standard Deduction & Personal Exemption (05:55)
The standard deduction has virtually doubled for everyone.
Head of Household: $18,000
When you file your taxes, you can choose to either take the standard deduction or itemize your deductions. Typically, taxpayers will choose to take the higher of the two, although itemizing your deductions means a lot more record keeping!
Depending on your situation, the standard deduction might be much higher than your itemized deduction in which case this would make your tax filing a little easier.
However, the personal exemption has been removed for the 2018 tax year. For 2017, you would receive an exemption of $4,050 for you, your spouse, and any dependents. Since the personal exemption is out in the new law, you may end up having less of a deduction then you did in 2017!
Before you get too concerned, the Child Tax Credit is increasing to $2,000 per qualified child which might more than make up for any loss in deduction.
3. Changes to Itemized Deductions (14:53)
Adam spoke about some of the key changes to itemized deductions for the 2018 tax year.
- State and Local tax deduction is limited to $10,000. Depending on your state, this could be a significant impact to you.
- Miscellaneous Itemized Deduction has been removed. If you deduct items like unreimbursed employee expenses or tax preparation fees, that will no longer be allowed in the new law.
Again, the increase in the standard deduction may be more beneficial to you than the loss of these itemized deductions.
4. Mortage Interest Deduction on 2nd Home (17:42)
Some full-time RVers were concerned that Congress would remove the ability to deduct the mortgage interest on a second home. Good news, no changes there! If itemizing your deductions still makes sense for you for the 2018 tax year, you can still deduct the mortgage interest on your second home. Since the standard deduction is increasing so much, it may mean you don’t itemize at all next year!
5. 20% Pass-Through Deduction (18:35)
Congress included a brand new deduction available to certain business owners that “pass-through” their business income to their personal tax return. At a very high level, this new law will allow certain businesses to deduct 20% of their business income for the year.
Details are still being ironed out since it’s a brand new deduction, but if you’re operating a small business on the road, this will be something to watch out for.
6. Withholding for 2018
Adam and I didn’t discuss tax withholding on this episode because the IRS is still determining the withholding guidelines for this year. You might expect some changes to your paycheck as early as next month.
All-in-all, we can’t say definitively if your taxes will be simpler, more complex, less expensive, or more expensive next year.
If you want to speak with Adam about your situation, you can find him at Nuventure CPA.
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