For many people and organizations in Dallas, the tax environment has changed as a result of the recently passed Tax Cuts and Jobs Act (TCJA). This blog offers a high degree of planning opportunities for your particular situation because of the broad scope of the changes and the requirement for ongoing support. To make sure you maximize your tax benefits, additional discussions and tax predictions are likely required. For more information, contact an IRS tax problem help Dallas.
Will the 2018 tax reform affect individuals’s tax returns?
1. Variations in tax rates
Although there are still seven rates with the new law, they are all much lower today, with the highest tax going from 39.6% to 37%. There was no change in the tax rates that applied to qualified dividends and net capital gains.
2. A higher standard deduction
The following are the new standard deductions: $18,000 for heads of household, $24,000 for married couples filing jointly, and $12,000 for all other taxpayers. Because of the increased filing threshold, specific individuals may not need tax services to prepare their income tax returns. To receive that tax refund, however, you still need to send a tax return to your accountant! Other modifications to itemized deductions may impact whether you are above the usual deduction in a particular year, even if you already have itemized deductions that exceed these levels. The standard deduction increase will remain in effect until December 31, 2025.
3. Elimination of exemptions for dependents and individuals
The TCJA withdrew these exemptions on December 31, 2025. However, in order to get certain tax credits, you must include your dependents on your return.
4. Family and child tax credit
The TCJA created a new $500 credit for a taxpayer’s dependents who are not their eligible children and raised the child credit for youngsters under the age of 17 to $2,000. To make it possible for more people to benefit from this credit, the phase-out limits were additionally increased to $400,000 for joint filers and $200,000 for others.
Changes to the itemized deductions
- The entire itemized deduction phase-out has been canceled.
- There is a $10,000 maximum for the state and local tax itemized deduction ($5,000 for those filing as married filing separately). For example, you might not be allowed to deduct the $11,000 that is over the deductible level if you paid $15,000 in state revenue taxes and $6,000 in house real estate taxes for a total of $21,000.
- The debt deduction for mortgage fees on loans used to purchase a primary resident and a second residence has been decreased from $1 million to $750,000. Loan balances up to $1 million are still permitted under the grandfathering clause, which was in effect as of December 15, 2017.
- Unless the loan is actually acquisition debt (used for home renovation), interest on home equity debt (like a home equity line of credit) is no longer deductible. To find out if an interest deduction would be available in a different category, take into account whether the debt was used for corporate or investment purposes.
- Up to 60% of modified gross income can now be deductible as cash contributions to public charities.
- Donations to colleges for the purchase of tickets or seats at sporting events are no longer tax deductible.
New qualifying business income deduction (final registration issues in January 2019)
Effective for the fiscal years 2018 through 2025, the TCJA introduced a new deduction that permits individuals to deduct 20% of qualified business revenue from partnerships, S corporations, or sole proprietorships, as well as 20% of qualified publicly listed partnership income and dividends from qualified real estate investment trusts (REITs). This deduction is available whether or not you itemize your deductions, and it will lower taxable income but not adjusted gross income.