Self-Employed Persons – a Tax Deduction
One of the most significant sections of the recent tax reform is the addition of a Qualified Business Income Deduction, which provides a reduced tax rate to certain businesses. This deduction may be as great as 20% of the business net income. However, calculating the actual deduction can be complex as Congress provided several factors, including income, the profession, amount spent on wages and property acquired as factors in determining the deduction
Owning a Home
Owning a home in California, New York and in other high property value states has just become more expensive.
While deductions for state income and local (sales and property) taxes paid are now capped at $10,000 combined. This change will profoundly impact taxpayers in states with high home values and property taxes. In California, for instance, the residents pay some of the highest state income taxes in the country. This means that their tax deductions for the taxes they pay are severely limited; thus, increasing the tax bill, where applicable.
Under the previous tax law, families could claim a $1,000 credit for every child under the age of 17. This credit began to phase out for couples earning more than $110,000 per year. The credit has now been doubled to $2,000 per child, and the phase-out threshold has been raised from $110,000 to $400,000.
For people who don’t earn enough in a given year to pay taxes, they can still claim the credit, but their child tax credit refund is now limited to $1,400 per year.
Note that the new law also changes the guidelines for 529 education savings plans, which may now be used to pay tuition at private schools and religious schools, and to cover homeschooling expenses.
The new tax law makes a fundamental change in the way that alimony is taxed. In any divorce commenced after December 2018, the spouse paying alimony cannot deduct it and the spouse receiving the money no longer pays taxes on it. The IRS claimed that 361,000 taxpayers had claimed an alimony deduction in 2015. This new tax law eliminates that deduction. This may make negotiations regarding spousal support more contentious.
These changes will affect your 2018 taxes, so start planning now! We, at Moskowitz LLP, believe that you should take every tax benefit to which you are legally entitled – no more and no less.
Remember to subscribe to The Scope Weekly newsletter!
Follow The Scope Weekly on Twitter and Facebook and Instagram!
If you would like to become a contributor to The Scope Weekly, read our submission guidelines, and apply. For product reviews, click here.