Planning-Preparation-Advisory CPA Boulder

Tax planning is now more important than ever that the TCJA has completely changed the tax code landscape. There have been significant changes that impact tax planning on every level from individuals to businesses.

Individuals

Individuals will want to plan or run projections for the following changes:

Defer or Accelerate Income

  • The TCJA still has seven tax brackets, but they are slightly different from the existing tax law. If you are in a higher tax bracket next year due to the adjustments, you may want to consider deferring or accelerating your income. This is most applicable to individuals that are able to control their income, like someone who self-employed or owns a business.

Other significant changes include the following:

  • Correlates the kiddie tax to the trust tax rate and brackets

  • AMT exemptions have increased with adjustments for inflation, however,not applicable to trusts or estates

  • Standard deduction increased to $12,200 (2019)  for single and $24,400 (2019) for married filing jointly

  • Child credit increased to $2,000 per qualifying child of which $1,400 is refundable and a $500 nonrefundable credit for qualifying dependents

  • Cash contributions to public charity deductions increased to 60 percent of adjusted gross income

  • Deductions for investment fees, mortgage debt, and other miscellaneous itemized deductions have been eliminated

  • Limits total itemized deduction for state and local income and property taxes to $10,000.

  • Deduction for mortgage debt interest is limited to $750,000 for indebtedness incurred after December 14, 2017, however a previous mortgage debt is grandfathered in and limited to $1,000,000

  • Personal property is excluded from section 1031 like-kind exchanges

  • Deductions for alimony has been eliminated and excludes inclusion of alimony payments in income for divorce settlements after December 31, 2018.

  • 529 plans are now to include K-12 education expenses but limits use to $10,000 per year per beneficiary

Business Owners

A sole proprietorship and owners of a pass-through entity, such as a partnership or an S corporation are entitled to a new tax deduction equal to 20% of qualified business income from a qualified business. Not only is the deduction for businesses but the deduction is also available to individuals, trusts, and estates.

There are several limitations to consider that will determine if your business can take the 20% deduction: 

  • QBI (qualified business income) includes the ordinary income and deductions of a trade or business, but excludes investment type income such as dividends and interest, guaranteed payments to partners, and reasonable compensation wages paid to S corporation shareholders. The definition of qualified business excludes -specified service trades or businesses-which includes, health, law, accounting, and financial services, and performing arts

  • Qualified business income is capped at an amount that exceeds either 50% of W-2 wages paid by the qualified business or 25% of W-2 wages paid plus 2.5% of the unadjusted basis of qualified depreciated property used in the qualified business

  • Guaranteed payments to partners are not included, but W-2 wages paid to S corp shareholders may be included

  • ***IMPORTANT***Limits on the qualified business income deduction do not apply if taxable income falls beneath $157,000 and 315,000 for married taxpayers filing a joint return

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