You read about the many changes brought about by the TCJA, Tax Cuts and Jobs Act, that Congress passed and was signed into law last year. Now that your 2017 tax return is in your rear-view mirror and you realize we are approaching the last quarter of 2018 you are beginning to wonder just how exactly the changes to the tax code will affect you: will I be getting a refund? Or will I owe more than expected?
Earlier this year you may have noticed an adjustment to the federal tax withholding on your paycheck. After the first of the year the IRS released new income tax withholding tables for employers to use. The new withholding rates were to be implemented by February 15. For most people the new withholding rates means your net paycheck increased. That doesn’t guarantee you won’t be in for a surprise come tax time and owe tax when filing your 2018 return.
The changes to the tax code are significant. While the changes to the tax rates and the brackets for each rate might be the first noticeable change, the real affect for many will be related to the increased standard deduction but elimination of personal exemptions and the caps related to Schedule A. In fact, the cap on real estate taxes and SALT (state and local income tax) is a significant hit to many with significant income and high property tax states. On the upside, the TCJA all but eliminated the alternative minimum tax.
Everyone is affected differently. There will be “winners” and there will “losers” with the new tax law. Many see the reduced tax rates and the increased federal estate tax and gift tax exemptions and have a false sense of security on how the new law will affect them. Those that wait until 2019 to look at their situation may be in for a surprise. Some of the least understood yet biggest impacts will be on business owners who may or may not be eligible for the qualified business income deduction.
Now is the time to be project how the changes will affect you and determine if there are any planning opportunities available to you. There are significant benefits available for those who are charitably inclined. Depending on your age and stage in life it may be a great time to take advantage of lower tax brackets to do Roth conversions. Those on the line income wise of the pass-through ceiling may want to look at ways to reduce their AGI through above the line deductions.
Now is the time to talk to your financial planner in coordination with your CPA and determine how the TCJA will affect your individual situation and how can you be the most efficient using the opportunities available to you.