This is to inform you that President Donald Trump had on the 22nd of December, 2017 approved for the Tax Cuts and Jobs Act (TCJA) to become law. What this does is overhaul the way the taxes you remit to the Federal government are calculated and are remitted.
Ranging from reduced taxes right up to discounts for businesses who meet the benchmark, the TCJA will definitely affect the taxes you pay. We are writing to you, to brief you on the TCJA act and how it may affect you. This conversation is structured in a Q and A format based on questions received from our clients. If this however does not address your concerns, do send us a message.
Does the TCJA take effect from 2017?
While there are a few of the reforms that will affect your 2017 tax returns, a lot of the changes made in the tax laws will take effect from 2018 through to the year 2025. An example is that before the TCJA, the limit for deducting a medical expenses was 10% of your average income, that has however been reduced to 7.5%. For all available assets registered from 28/9/18, businesses can get a quality reduction discount for the first year. We will definitely see if any of those apply to you.
Will I pay higher taxes in 2018?
With the top rate taken from 39.7% to 37%, due to TCJA, 2018 taxes are actually less than that of 2017. Joint filers with a taxable amount of over $600000 can now have a field day with the top rate. There is also a difference in the regular subtraction; from 2018 joint filers have a regular subtraction of $24000 as against the previous $12700, heads of houses can subtract $18000 and single people can subtract $12000.
It's important to know that the TCJA might suspend the subtraction at its own discretion. You should claim your subtractions and not just list them if you want to pay less tax in 2018. While there are no more personal subtractions, a higher child tax and incredibly lower tax rates will increase the money you have. The truth is you decide if you pay more or less but do not forget that that is why you have us.
Please Note: Do you have a child or dependent? You may need to check if he/they do qualify for the Kiddie Tax. Note that from 2018 to the year 2025, the taxes on kid’s incomes are taken in the form of savings, trusts and lands up to 37%.
Has my Best Reductions been adjusted?
Yes, quite likely it has. What TCJA does is change the regulations of the subtractions we live the most. You may read through this list of some changes we noticed:
Interest on Mortgage: With the TCJA, you cannot subtract profit on mortgage debt. Before now you could subtract with the limit being $1 million for joint filers and $500000 if separated. For home equity debt, it was possible to deduct up to $100000 for joint filers and $50,000 for single filers.
State and Local Taxes: Beginning in 2018, taxes on local and state payments are restricted to $10000 and $5000 if separated.
Alimony: After 2018, alimony will not be subtracted for taxes but the alimony doesn't have to show as a source of income on the other end.
Relocation Spending: With the exception of people in active duty, the TCJA rules out subtraction for your relocation or movements.
Death or Stolen Items: There is no longer a subtraction for Death and Stolen Items as it has been put on hold. However if the disaster is federally acclaimed then go for it.
Listed Subtractions: They are but not limited to, investment spending, group payments, unpaid spending etc. However, these are subtractions have been taken out completely.
Child Tax Credit: One good thing about the TCJA is the fact that there's been an increase from $1000 to $2000 in the tax credit for children below 17. There is equally a $500 credit for people above 17 who are still dependants.
Is the Alternative Minimum Tax (AMT) Available?
Absolutely, the AMT was not exempted on the TCJA. The restriction however, has gone up from $109,400 for couples who are filing together, $54,700 if the filing is separately while $70,300 for singles. This however does not affect people with AMT of more than a million dollars and 509,000 per year for singles.
What Is This New Pass-through Deduction?
There's a lot of news about the "pass through' but only businesses who pass the score based on sole proprietorship, LLC's, and a host of other things, get access to this. About 20% of business tax returns can be deducted but it will still be reviewed by so many other rules and guides. We'll be sure to check if you qualify for this.
Is It True “Obamacare” Was Repealed?
Technically, yes. People who did not have a health plan and could not afford to treat themselves were given a responsibility that is shared under The Affordable Care Act popularly called Obamacare. However from 2019, with the new TCJA, shared responsibility is nil. Tax payers are however still advised to remit their taxes owed.
Will there be a replacement for Estate tax?
Not at all, Estate tax remains intact in the TCJA. But the exemption is no longer $5.49 million but about $11.2 million with spouses paying $22.4 million. What this implies is that there will be fewer estates up for taxing.
It is obvious that this letter addresses only a few of the numerous things the TCJA and the new rules. Do feel free to call us if you need clarifications or just want more answers