How Will the 2018 Tax Reform Bill Affect You?

Aaron Steensma - Wednesday, August 08, 2018

Changes surrounding the 2018 tax reform bill have left many Americans wondering how they'll be affected in the near future. Because this has been one of the largest tax overhauls in decades, we're highlighting some of the most significant changes for individual taxpayers.

Standard deductions: Those who are married and filing jointly will have an increased standard deduction of $24,000, up from the $13,000 under previous law. For heads of households, the deduction will be $18,000, up from $9,550. Single taxpayers and those who are married and file separately now have a $12,000 standard deduction, up from the $6,500 it would have been for the prior year. 

Personal Exemption: The personal exemption has been eliminated with the 2018 tax reform bill.

Top income tax rate: A new 37% top rate will affect those filing single with incomes of $500,000 and higher. The top rate goes into effect for married taxpayers who file jointly at $600,000 and up. The new tax law includes changes to other tax brackets as well, all of which can be accessed by downloading the Tax Reform Quick Reference Guide.

Child Tax Credit: The child tax credit has been raised to $2,000 per qualifying child under the age of 17, which is an increase from $1,000.

529 Plans: Parents can now use the 529 plan to pay for their child’s education at private elementary and high schools. Previously these funds were only available for a college education. These changes give parents more options when it comes to education since they will see some tax benefits if they choose to send their children to a private school.

Charitable Donations: Under the previous law you could deduct up to half of your income in qualified charitable donations if you itemize your deductions. The new tax reform bill has increased that limit to 60% of your income. 

Mortgage Interest: The deduction for interest is capped at $750,000 for mortgage loan balances taken out after December 15, 2017. The limit is still $1 million for mortgages that were established prior to December 15, 2017.

State and Local Taxes Deduction: Under the new rules, individuals can deduct up to $10,000, or $5,000 for married taxpayers filing separately.

If you would like to learn more about each of these changes in detail, fill out the form below and we will email you a copy of the Tax Reform Quick Reference Guide, which provides an overview of all the changes to federal tax law.

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If you have questions regarding the 2018 Tax Reform Bill, contact us at 616.530.0466.

2018 New Tax Laws: What Business Owners Need to Know

Aaron Steensma - Monday, February 12, 2018
Tax season is upon us and as a business owner, it's in your best interest to make yourself familiar with the many accounting changes that took place under the 2017 Tax Cuts and Jobs Act. While some changes will involve your overall method of accounting, several others affect only certain types of businesses. Either way, you'll want to understand what these changes will mean to you, and together we can create a plan of action.

Cash Basis Method of Accounting

The changes brought on by the 2017 Tax Cuts and Jobs Act will allow more businesses to utilize the cash basis method of accounting. All businesses (except tax shelters) with average gross receipts of less than $ 25 million over the previous three tax years can now use the cash basis method of accounting. 

Section 179
For tax years beginning after 12/31/17, up to $1,000,000 of qualifying purchases can be made and immediately written off as a section 179 deduction. In addition, a business owner may purchase up to $2.5 million in qualifying business property, however, the deduction will be phased out for those who purchase more than the allowed $2.5 million. If your total asset purchases exceed $2,500,000, the $1,000,000 will begin to phase out, meaning the full $1,000,000 will not be available for a write-off. Fiscal years will continue with the previous Section 179 expense deductions of $ 510, 000 for one year. Qualifying assets include certain types machinery, construction equipment, furniture, computers, software, or technology equipment. New this year are tangible personal property in lodging facilities (including rental properties and hotels), roofs, HVAC, fire protection systems, alarm systems, and security systems. Because certain restrictions do apply, its best to get in touch with us so we can go over all qualifying purchases with you.

C Corporation Tax Rate
C Corporations are going to see a major change as the flat tax rate has dropped to 21%, starting in 2018. Because this new tax rate could mean big changes for business, we recommend having an analysis done to make sure that being structured as a partnership, S-Corporation or disregarded entity is still the best option for your business. In addition, the net operating loss rules for C Corporations have changed as well. Under previous tax laws, a loss could be carried back 2 years and forward 20. The use of the loss was not limited to a percentage of income. Under the new tax law there is no option to carry back the net operating loss, it must be carried forward but is limited to 80% of the current year income.

Entertainment Expenses
Previously 50% deductible, entertainment expenses will no longer be deductible at all. Entertainment expenses include athletic events, concerts, and certain club dues. The good news is that the 50% deduction for meals has not changed. 

20% Flow Through Deduction
The changes that have gone into effect as part of the new tax reform bill, have left many asking: "how do I calculate the 20% deduction for my business?" The new 20% flow through deduction is available for qualifying pass thru entities, schedule C’s, some schedule E’s and F’s; although not available for C corporations. While pass-through income will continue to be taxed at ordinary income tax rates, many small business owners will be eligible to deduct 20% of their qualified business income (QBI) starting in 2018. In other words, some pass-through entities will only be taxed on 80% of their pass-through income. To calculate the deduction take 20% of the lesser of qualified business income or adjusted taxable income. Note that there are limitations for those with incomes greater than $315,000 (MFJ) or $157,500 (others). 

As you can see, there are a number of changes taking place in 2018. It's a good idea to schedule an appointment with one of our tax specialists so you can be prepared for the year ahead and make sure you're taking advantage of all applicable tax changes.