Last December, massive tax reform was successfully passed. And if you take a look at the new tax code, it’s a lot like going through a box of chocolates. There are quite a few goodies in there for individuals, but at the same time, there are a few not-so-sweet changes for your wallet, according to Stephen Varanko, a Certified Public Accountant (CPA). Here’s a rundown on what individuals can expect going forward under the new tax bill.
First, the tax brackets and associated rates have changed. Under pre-act law, six brackets existed: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. Now, seven tax rates are in place: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. A zero rate also exists. The 10% rate applies to married people whose taxable incomes are not over $19,050, whereas the 37% rate applies to married couples earning more than $600,000. In the latter case, the tax would be $161,379 plus 37% of the excess over $600,000. Just about all Americans will benefit from the reduced tax rates and broader tax brackets.
Another major change brought on by the new tax law is that the amounts people receive for standard deductions will rise to $12,000 for an individual, $18,000 for a head of household, and $24,000 for a married couple filing jointly as well as a surviving spouse. That’s great news as well.
On the flip side, there are two major changes with potentially negative impacts. The new tax law brings changes to the deduction of home mortgage interest. Now, you can deduct interest paid on up to $750,000 of debt. This is a lot lower than the limit for a mortgage taken out prior to December 15, 2017 -- a million dollars. The second significant negative change comes from the addition of a limit in the amount of state and local taxes (SALT) allowed. The new law limits the total SALT deduction to $10,000 which means many taxpayers will not receive a tax deduction for all of the taxes paid each year.
This means that home ownership may not be as cost effective for those owning expensive homes in high-property-tax states. A reputable CPA can easily walk you through these changes along with the many other tax-related changes that may affect you financially in the years ahead.
If you’re a business owner with a pass-through entity, there’s good news for you: The new tax law will give you some financial relief in the coming years. Of course, not everybody is happy about the change, according to experienced Certified Public Accountant (CPA) Stephen Varanko. Let’s take a look at one of the new tax law’s most controversial components -- the introduction of a deduction for all pass-through entities’ income.
This deduction, known as Section 199A, reduces taxes for taxpayers receiving income through pass-through business ventures. These ventures are basically companies that aren’t subject to our nation’s corporate income tax. It is anticipated that this deduction will decrease the federal government’s revenue by more than $400 billion during the next decade.
What’s so great about this deduction is that it delivers tax relief to many American businesses and places small businesses on a more level playing ground with “C” corporations. However, opponents of the new deduction claim that it predominately benefits the wealthiest households and arbitrarily favors pass-through business venture income over alternative income sources.
The pass-through income deduction essentially enables you to exclude as much as 20 percent of your pass-through income from income tax at the federal level. Keep in mind, though, that this deduction comes with several limits in an effort to prevent abuse. These limits are based on factors such as your business’s economic sector, the amount of wages your business pays, and your business property’s original cost. However, the limits apply only to the upper-income taxpayer.
The new pass-through income deduction is no doubt complicated and thus confusing for many business owners, according to Stephen Varanko. Fortunately, a CPA can help you to sort out what the new deduction means for you and your pass-through entity in the tax years ahead.
About to hit the road? If you’re doing it for business purposes, don’t forget to keep track of how many miles you travel: It’ll save you a chunk of money at tax time. Here’s a look at some handy tools for tracking your business mileage in 2018 and why you should be doing this, according to Certified Public Accountant Stephen Varanko.
If you’re like many business owners, you’re so focused on your immediate business activities that money-saving mileage tracking often takes a backseat. But thanks to the built-in global positioning system in today’s phones, a leading mileage-tracking app can easily detect when you’re on the road, save your mileage information, and classify your drive for future reference. Then, your app can produce for you an Internal Revenue Service–friendly report so that you receive all of the mileage credit to which you’re entitled.
You can’t beat that.
One of today’s leading mileage tracking apps is Mileage Expense Log (iOS). This app enables you to automatically track your trips. Some believe that this app is a bit less user-friendly compared with other similar apps. However, once you have mastered the interface, the app works well. It can even sync your trip data to Dropbox or iCloud, and it is even compatible with the Apple Watch. Keep in mind, though, that your options for exporting data are limited to CSV and HTML.
Another popular mileage tracking app is MileIQ (iOS, Android). It is among the best mileage trackers with its intuitive, slick interface. Some users say it’s similar to Tinder but for trips. The app maintains a tally of your business mileage as well as how much each of your business-related trips are worth. Many users find the app to be organized and fast, and they also like its robust options for exporting data. It additionally offers integration with such tools as FreshBooks and Concur. The more you take advantage of these mileage tracking tools, the more money you’ll literally save down the road.