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, LLC, 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, LLC. 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, LLC 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!