The smallest change in the tax code can mean a big difference to your tax situation.
As an experienced, knowledgeable CPA firm that has provided personal and business tax services in Clearwater for more than 20 years, it’s our job to understand all changes to the tax code and develop strategies to best manage those changes.
Tax Changes that Affect Individual Tax Payers
There are changes in the tax code that greatly affected the taxes that individual taxpayers have to pay. It affected some individuals positively and others negatively.
- Standard Deduction Nearly Doubled
Individual taxpayers can claim a standard deduction when they file their tax returns. This effectively reduces their taxable income and the amount of taxes that they have to pay.
The Tax Cuts and Jobs Act dramatically increased the standard deductions that taxpayers can claim. The deduction increased from $6,500 to $12,000 for individuals, $13,000 to $24,000 for married couples filing joint returns, and $9,550 to $18,000 for heads of households.
For many people who used to itemize their deductions, the standard deduction is now larger than their itemized deductions. If you are in this situation, taking the standard deduction will not only save you money, but it will also save the time of itemizing your deductions and eliminate the risk of being audited for deductions the IRS considers suspicious.
- Deductible Items Limited
The Tax Cuts and Jobs Act limited some tax deductions and completely eliminated others.
- State and local taxes (SALT). Taxpayers can still deduct state and local real estate, personal property, and either income or sales taxes, but the total SALT deduction is capped at $10,000.
- Mortgage interest. The deduction for home mortgage interest is limited to the first $750,000 of mortgage debt (reduced from $1 million)
- Home equity interest. Homeowners may no longer deduct interest paid on home equity loans, unless the debt is used to buy, build, or substantially improve the taxpayer’s home that secures the loan.
- Deductions were eliminated for casualty and theft losses, unreimbursed employee expenses, and tax preparation costs.
These changes will reduce many people’s itemized deductions, causing the standard deduction to become a more attractive option.
- Child Tax Credits Increased
One of the things that was removed is the personal exemption for every dependent that appears in an individual’s tax return form. These personal exemptions were replaced with a higher child tax credit.
Tax Changes that Affect Businesses
There were also tax reforms that affect how much businesses have to pay in taxes. Here are some of them.
- The corporate tax rate was lowered.
The government lowered the corporate tax rate for C corporations from a top rate of 35% to a flat tax of 21%.
- Qualified Business Income Deduction for small businesses.
Sole proprietorships, partnerships, and S corporations are not subject to corporate taxes. Profits are taxed under the owners’ individual income tax. The Tax Cuts and Jobs Act created a 20% deduction on these profits.
If you are looking for an experienced CPA to provide you with personal or business tax services in Clearwater, Largo, Dunedin, Oldsmar, Lutz or Land O’ Lakes, contact FMA, C.P.A for a free consultation.