by Kym Byrnes
There has been plenty of chatter about the federal government’s major tax overhaul, but do you know how those
new tax laws will impact your bottom line? For this tax season, at least, not at all.
The changes resulting from the new tax law largely go into effect this year, meaning that they will impact the income and expenses you report when you file your 2018 tax return in 2019. The taxes currently being prepared are for 2017.
Lee Sturgill, managing partner of Sturgill and Associates LLP, said that his firm is working with clients this year to prepare them for next year.
“When we meet with our clients for their 2017 taxes, we’ll prepare a tax projection for 2018 so they can see how these new laws will impact them,” Sturgill said. “Hopefully it will provide a basis for planning and discussion going forward.”
Very little from the new tax code is going to affect retirement savings, according to Matthew Staub, vice president of Pilot Capital Management Inc. The law does end characterization of a Roth IRA to a traditional IRA starting in 2018, but the conversion from a traditional IRA to a Roth IRA will still be allowed.
The law did not make any changes to existing retirement savings incentives in 401(k)s, IRAs and other qualified retirement savings vehicles.
While there were no changes to the capital gains tax rates, Staub said, higher-income investors should note that the tax brackets no longer line up with those for the federal income tax.
While only those in the highest federal income tax bracket paid 20 percent capital gains tax in 2017, the 20 percent threshold for capital gains now lies near the middle of the second-highest federal tax bracket (35 percent). This means that married couples filing jointly who are near the $479,000 mark need to be aware that they could owe more in capital gains, even though they will not move into a higher federal tax bracket.
To get more information about accounting and tax planning, visit www.sturgillcpa.com; for more information about financial planning and investment management, visit www.pilotcapitalmangement.com.
Please note that this is general financial and tax advice and insight. For advice specific to your circumstances, please speak with a tax advisor.
A few highlights for your 2018 tax return:
- Under the new tax reform, federal withholdings will go down. The IRS has updated the income tax withholding tables for 2018 to reflect changes made by the new tax law. People should soon see their federal withholding go down.
- Miscellaneous itemized deductions (for example, those of an outside salesman with a lot of personal business expenses) will go away, so employees might want to talk to their employers to see if they can shift some of those expenses.
- The standard deduction will increase to $12,000 for single filers and $24,000 for married couples filing jointly — which means many people who previously itemized their deductions will no longer need to. In 2018, the personal exemption will go away as well, so a large family will see more taxable income. On the other hand, the child tax credit will increase to $2,000 (right now it’s $1,000 for kids under 17 based on income), so families could see an increase there.
- Homeowners will see their available deductions change. The mortgage interest tax deduction reduces taxable income by the amount of mortgage interest a homeowner pays. In 2018, the deduction will go from $1 million down to $750,000 on purchases of new homes. In addition, the home equity deduction is being eliminated (unless previously used for home improvement). Taxpayers will no longer be able to deduct the interest on home equity debt.
- Starting in 2018, 529 plans — tax-free savings plans designed to encourage savings for future college costs — will allow funds to be used for K-12 education costs. Previously dedicated to college costs, the new tax plan allows for up to $10,000 in plan funds to be used for the cost of private, public or religious school tuition and books through 12th grade.