The Tax Cuts and Jobs Act (TCJA) was signed by President Trump in December of 2017, but we have only been impacted by the changes since the 2018 tax year. There are still many taxpayers who have struggled to understand how they are impacted by this act personally. At Fricke & Associates, P.C., we would like to help you understand the changes so you can minimize your liability and stay informed. Explore the specifics below, but feel free to contact us with any questions you may have along the way.
The TJCA Breakdown:
- What did the TCJA do specifically?—Basically, it cut individual income tax rates, cut the corporate tax rate, doubled the standard deduction, and removed personal exemptions from the tax code as well as eliminating or changing many itemized deductions. The corporate cuts are permanent, but the other cuts will be in effect until 2025 when they will be revisited by Congress.
- Who is impacted significantly by this act?—Generally speaking, High-income earners, individuals with valuable estates, taxpayers who claim the standard deduction, large families, self-employed individuals, and young people.
- How does the standard deduction increase potentially help taxpayers?—Taxpayers will save time through not having to spend significant amounts of time figuring out itemized deductions. The standard deduction increase is quite substantial, which benefits taxpayers even if they are losing opportunities for itemized deductions. Unfortunately, charities may feel the impact of this change because some taxpayers may choose to forego or bundle charitable deductions if they may not result in itemized deductions exceeding the standard deduction.
- How can it impact families?—There are many notable changes which relate to families, but a few worth mentioning. After January of 2018, taxpayers entering in agreements to pay alimony can no longer adjust their income to account for it. The Child Tax Credit was doubled. There is also a stipulation that parents who did not earn enough to pay taxes can still claim a refund of the credit (up to $1400 after owed taxes have been deducted). There is also a $500 credit for other dependents, which could be defined as a child who does not meet standard criteria for the Child Tax Credit or an elderly parent. If you are interested in learning more about how your family is impacted, reach out to one of our professionals at Fricke & Associates, P.C. We are happy to help your family!
- How can it help businesses?—TCJA lowered the maximum corporate tax rate from 35% to 21%. This is the lowest rate in our country since 1939. Another positive is related to business deductions. The act established a 20% Qualified Business Income Deduction rate for pass-through businesses, which would include real estate companies, hedge funds, private equity funds, sole proprietorships, partnerships, limited liability companies, and S corporations. It is worth mentioning that the act has made it more challenging for corporations to deduct interest expense as well as establishing more stringent requirements for carried interest profits. If you still have questions about how this act connects with your business, reach out to Fricke & Associates, P.C. for a consultation.
Depending on your situation, there may be even more opportunities from TCJA worth exploring. We can help you navigate this act for yourself or your business. Contact us today!