New Tax Law……Ouch! Ouch! Ouch!
As many of you already know, I have been out teaching the new tax law for a few months now. It is a real piece of work! There are winners and losers. It is complex enough that I am unable to categorize who wins and who loses. There are too many moving parts to this thing. However, there are some big items that are easy to discuss and point out. First, the standard deduction is doubled. That means that many Americans will NOT be itemizing deductions anymore. HINT: Pull out your tax return and see if you have a Schedule A somewhere in there (it should be the 3rd page of your return, if there). Second, the deduction on that Schedule A for taxes (state income tax and property tax) is now limited to $10,000 total. That is going to cause many taxpayers to pay a good deal of additional tax! Next, the alimony rules have changed starting in 2019 (not 2018). Basically, the payor of the alimony will NO LONGER be able to deduct the payments. However, the recipient of the alimony will no longer have to include it in income. Again, as you can see, some win and some lose.
Next, the AMT (the “alternative minimum tax”) was NOT repealed, as we had hoped. Nevertheless, it was modified enough so that a LARGE number of Americans will no longer be subject to it. That’s a GOOD thing! HINT: Pull your 2017 tax return, turn to page 2 and look at line 45. If it is blank, you are lucky. If it has a number on it, you were subject to the AMT in 2017 and it is possible that you will NOT be subject to it in 2018. Yay!
If you are involved in a business (not filing as a C corporation) there is a brand new 20% deduction that will help many taxpayers for 2018 and on. I have taught 4 hour seminars on this subject alone. It is quite involved and complex, but it will ultimately be very good for a lot of you. Your ability to “get” this deduction will, primarily, be dependent on your taxable income for 2018. We will be doing a lot of mid-year and yearend tax planning for clients around this particular deduction.
Lastly, “miscellaneous itemized deductions” have been REPEALED. This is bad. Really bad. If you itemized deductions (that’s the Schedule A we talked about earlier), open up your tax return, find Schedule A and look at lines 21-27. If you had a number ending up on line 27, that means you got some tax benefit from these deductions. NO MORE! GONE! Many truck drivers and nurses have numbers here. The “word on the street” is that these employees will be needing to go back to their employers and change the way things are done. For example, you might want to ask your employer to reimburse you for those expenses. That way, they get deducted…by the employer. Anyway, this is getting a LOT of attention.
OK…..there is SOOOO much more, but that’s all for now. Don’t hesitate to call us for questions, guidance, etc.