With all of the various changes imbedded in the December 2017 Tax Cuts and Jobs Act (TCJA) tax reform bill, how do you know what you can expect when you file your 2018 taxes in April 2019? This bill was packed with changes, some of which hurt certain taxpayers and helped others. Certain tax deductions and personal exemptions were eliminated, and at the same time, tax rates decreased at the various income tax brackets with the top rate coming down from 39.6% to 37%. So what does this all mean to you? Tax planning is more important in 2018 than ever.
Reassess Your Federal Income Tax Withholdings
Every taxpayer needs to reassess their federal income tax withholdings in light of all of the changes. If you have historically counted on significant itemized deductions to lower your tax burden, you could find yourself in an unfavorable tax position come next April 15th. However, if you have always taken the standard deduction and do not have a lot of other complexity in your tax return, then you might be pleasantly surprised by the effects of tax reform on your results next April 15th.
Recalculate Your Estimated Taxes
There were several other changes in this tax reform that affected individuals who either have a Schedule C business activity or own an interest in a pass-through entity (S-Corp, LLC, etc.). If you are a business owner, timely tax planning is even more critical. The depreciation limitations on capital expenditures have been increased, a pass-through deduction was passed that allows eligible pass-through entities to deduct up to 20% of their qualified business income (which affects the shareholder’s share of taxable income) and the domestic production activities deduction (DPAD) was eliminated, just to name a few. These changes can have a significant impact on a business owner’s 2018 tax results.
Act Now To Eliminate The Surprise Later
Don’t be surprised next tax filing season; there have been a high volume of changes, some simple and others very complicated. Get out in front of tax planning while there is still plenty of time to understand how these changes impact you and take the necessary steps to minimize your tax liability and preserve cash. In addition, if you find yourself with an unfavorable outcome as a result of tax reform, use this time to plan your estimated tax payments accordingly and manage your cash flows before it is too late to do so.
We’re ready, willing, and able to help with your business or individual tax planning for 2018. Contact us to schedule a tax planning session with your LGA advisor.