By Barb Chase, EA
The changes to individual and business tax laws for 2018 were huge. The government has led people to believe that they have simplified IRS Form 1040 by putting it on a postcard. That was not necessarily the case.
Though the new Form 1040 is smaller, postcard size, and does simplify the filing process for some taxpayers, many will still have to jump through the same or similar hoops as before to complete their returns. There will be six new worksheets that will contain additional information and calculations necessary to complete the new Form 1040 depending on the types of income and deductions the taxpayer has. Sounds simple, right?
In addition to the new form, there are numerous changes to the tax laws for individuals. Lower tax rates, higher standard deductions which will eliminate most of our Schedule A Itemized deductions, elimination of personal exemptions, changes in home mortgage interest, elimination of home equity interest, $10,000 limit on state and local tax deductions including property taxes, elimination of miscellaneous itemized deductions which includes unreimbursed employee business expenses and mileage, doubling the Child Tax Credit to $2,000 and even a new credit of $500 for non-child dependents such as elderly parents. Simple, right?
These are only a few of the changes for individuals and if you happen to have a business…well, let’s just say you need to be talking to your accountant or tax professional to see how all the new business tax laws will affect you and how you can plan for the future. The government is still working on clarifying these changes and we are working with the information we have to help business owners choose the best path for them.
We are well into the current tax season and are seeing some pretty drastic results stemming from the Tax Cuts & Jobs Act. Overall, tax refunds are down, some dramatically so! Does this mean the Act did not benefit taxpayers as it was designed to? Not at all! You must take into consideration the tax benefits you received during 2018 by receiving more in each paycheck and the lower tax brackets. In February of 2018, the federal withholding charts were adjusted lowering the amount of withholding from each paycheck creating an increase in take-home pay. If your household had more than one W2 for the year, each paycheck take-home pay increased causing a smaller refund at the end of the year.
To see how much you actually benefited in 2018, compare the total tax you paid to the taxable income for 2017 & 2018. The majority of you will find that you paid a lower percentage of tax in 2018 due to the Tax Cuts & Jobs Act. As always, you can adjust your withholding in 2019 if a larger refund is what you really want.
ALL NEEDS TAX & ACCOUNTING
Barb Chase, EA
Barb has been preparing taxes in Saint Clair for 31 years. She has her Bachelor’s Degree in Accounting from California State University, Stanislaus and has been an Enrolled Agent since 1994 which gives her the authority to represent clients before the Internal Revenue Service and Tax Court. Keeping up with the changing tax laws and how they apply to individual clients and businesses is her priority along with helping others navigate any tax related issues they may have, including estates, trusts, corporations, LLCs and partnerships.
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