When tax time rolls around each spring, you may have many questions about how to file and which new laws might have changed your status. While not all changes to these laws might apply to you, it still may be wise to look into them, especially if you own a business or there were changes to your family size in 2018. President Trump made some significant modifications to certain tax codes in 2017, and there are several details that may now affect the way you file.
1. Changes To Personal Exemptions
Before the 2017 tax code changes, you could take up to $4,050 in personal exemptions if no other individual claimed you as a dependent. For example, if you are married and file jointly or separately, you could take this exemption for yourself, your spouse, and for each child. Remember that this exemption is not equal to a deduction, which is generally dictated by your income.
Your 2018 filing might be affected if you claimed the personal exemption in previous years, as Trump’s new law has done away with it completely. The news is not all bad, however, as it has been replaced by a deduction that may allow you to claim a higher refund. If you are concerned that this new law may affect the way you file, it is a good idea to consult a tax expert before you try to submit your forms to the government.
2. Capped State and Local Taxes
Before Trump’s new tax bill, you could claim an unlimited amount of deductions on state and local taxes, whether you were filing individually or for your business. These deductions might have reduced the total amount you owed on state tax fees. Some of these exemptions included taxes paid on real estate purchased that year or sales tax on major purchases, such as a vehicle or a home.
Since Trump’s new tax law has gone into effect, deductions for these taxes have been capped at a maximum of $10,000. For instance, if you made several major purchases last year and the total taxes exceed that amount, you cannot claim more than the total the new law indicates. This change may be more likely to affect you if you are in a higher tax bracket or made major purchases for your business.
3. Corporate Tax Changes
If you own a corporation, the way you file could go through some changes this year. Previously, there was no flat tax for entities claiming taxable income. With the new bill, it may be simpler for you to compute this amount, as there is now one single rate for this tax, and the minimum has been eliminated as well.
If you own a corporation, chances are you do not file on its behalf. However, you may want to discuss these changes with your accountant and ensure he or she is aware of them. Give yourself plenty of time to have this conversation and learn how the new laws might affect the total amount of your company’s taxable income.
4. Dependents and Marital Status
The trump tax reform will likely affect you if you have children you can claim as dependents or if you pay alimony to a former spouse. The news is mostly positive if you have several dependents, as the child tax credit has doubled from $1,000 per child.
If you are paying alimony, you may not be happy about the tax reform. Under the new law, you can no longer deduct these payments from your taxes, and your spouse need not report the money as an additional source of income. Remember to discuss these issues with your tax preparation specialist so you follow the new laws properly.
President Trump’s new tax laws are affecting both personal and commercial filings. However, learning as much as you can about these changes can give you peace of mind when you submit your forms in April.