If there’s one thing that you should know about the Tax Cuts and Jobs Act (TCJA), it’s that it will affect all taxpayers. The wide-ranging modifications are specific to income and types of deductions, and the details are best handled by a qualified CPA. However, that doesn’t mean you can’t get a general sense of some of the things to expect from the 500-page TCJA.
The Most Important Changes in Your Tax Returns
The most important change to tax return results from changes to itemized deductions and personal exemptions. For example, your home mortgage interest, miscellaneous deductions and state and local property tax deductions are eliminated or significantly restricted. Exemptions for family members have been eliminated while child tax credits have been increased. It’s now more likely that individuals and couples will take the standard deduction instead of itemizing. This is because of the increase in the standard deductions to $12,000 (single filer) and $24,000 (married filing jointly).
For corporations, the most significant change is the decrease in the corporate tax rate: it dropped from 35% to a flat 21%. As it pertains to smaller pass through entities, Section 199A of the TCJA now allows for a 20% deduction for Qualified Business Income.
Understanding the Many Changes in the TCJA
Frankly, grasping the full scope of the changes to the tax code and how they will affect your tax returns is probably beyond anyone who isn’t well-versed in the tax laws. As an example, the myriad of qualifications and addendums in Section 199A are very complex; there are phase-outs and limit caps that are extremely detailed. Individual taxpayers, business owners, and corporate tax returns will have to be fully analyzed for a proper application of the new rules.
While tax rates decreased for all individuals and families, the overall impact on a specific tax return cannot be determined without taking into account such variables as family size, income producing activities and types of deductions.
Despite the complexity of the Tax Cuts and Job Act, the general outcome is one of considerable benefit to businesses in all industries — except, perhaps, the very top performers in specified service businesses such as lawyers, financial services professionals and healthcare practitioners. Even for these, the services of a qualified CPA can position you to maximize the benefits applicable to your particular business.
To fully benefit from the TCJA and understand the intricacies of the changes as they pertain to your tax reporting, get in touch with a qualified CPA — careful planning can result in big dividends for you.