When Itemizing Tax Deductions, Hold the SALT
March 27, 2018
No matter where you live in the U.S., you have to pay taxes (sorry). But the type and amount you pay do depend on where you live. Now, taxpayers in high-cost areas who’ve enjoyed cushy itemized deductions for state and local taxes (SALT) may not catch a break anymore.
To itemize or not to itemize? It depends.
Taxpayers have two options for tax deductions: itemize or take the standard set by the IRS. This year’s tax season has no restriction on the total amount of SALT deductions you can have, but that will all change starting next year. The Tax Cuts and Jobs Act (TCJA) will cap taxpayer’s combined state property, income, and sales tax to the following deduction limits:
- Single filers: $10,000
- Married filing jointly: $10,000
- Married filing separately: $5,000
The high-income household shift to standardized deductions
A third of filers pick itemizing over standard deductions, according to the IRS. And of those itemizers, 95 percent choose to deduct their SALT. Most of the SALT-deducting taxpayers live in high-cost states such as New York, California, Oregon, and New Jersey, where property taxes alone can easily exceed the $10,000 threshold. So why the cap?
The SALT itemization cap is meant to encourage taxpayers to use the standard deduction, which sits at:
- Single filers: $12,000
- Head of household: $18,000
- Married filing jointly: $24,000
This is meant to simplify tax preparation as people opt to take the standard. But residents of costly states knew this would be bad for their wallets, and some tried to pre-pay 2018 property taxes before 2017 came to a close. Unfortunately, it doesn’t work that way, and the IRS already added a rule against prepayment.
When it comes down to it, it won’t be worth itemizing your SALT deductions next year unless you’re able to diversify them. Ask your tax preparer if taking the standard is in your best interest and how you can prepare to handle additional tax reform changes.
Need more tax help? Call us for a free, confidential consultation today at 877-588-1098.
No Healthcare, No Problem: Tax Reform Slashes Obamacare Penalty
March 21, 2018
2010 brought us the iPhone 4, a first Super Bowl win for the Saints, and Lee DeWyze’s claim to fame on American Idol. And while these things promised a new hope, we’re more than happy to have moved on. The same goes for changes to Affordable Care Act (ACA), aka Obamacare, thanks to tax reform.
Say “No” to Paying Big Money for No Coverage
Tax reform through the Tax Cuts and Jobs Act of 2017 is flipping a major downside for many Americans – the big ol’ penalty for no health coverage.
Enacted by Congress in 2010, Obamacare required every American to have health coverage or an exemption due to low income or other factors. To no one’s surprise, not everyone could (or wanted to) meet this requirement due to the high cost of healthcare. As a result, the IRS reports 4 million Americans paid penalties for having no coverage in 2016, and at least 5.6 million paid the penalty for the 2015 tax year.
The penalties for 2017 and 2018 filings can amount up to $695 per individual or 2.5 percent of household income (up to $2,085). Moral of the story: Not paying for healthcare means you still have to pay something.
Looking Forward to a Penalty-free 2019
Tax reform promises millions of Americans a freedom from monstrous no-healthcare penalty fees, but don’t drop your provider quite yet. The changes won’t take effect until the 2019 tax year. Knowing the implications of The Act can help you calculate tax liability and plan for your year.
A tax professional like those at Tax Defense Network can guide you through how these changes could affect you, and what to do to avoid penalties in the future.
How Pass-through Businesses Win at Taxes
March 12, 2018
Across the country, CPAs are crunching (and crunching, and crunching) numbers to assess how their clients can benefit from the new tax reform law. And for business owners, becoming a pass-through entity is even more enticing than ever.
What Are Pass-through Organizations?
Nearly 95 percent of businesses in the U.S. are pass-through organizations, and for a good reason. The structure is designed to reduce double taxation, or taxing a business both at a corporate level and on the owners’ level.
Instead of a twofold hit, company profits (and losses) are sent straight to owners or shareholders without a pit stop at the corporate level. Business owners then file and pay taxes through their individual returns (not corporate returns). Sole proprietorships, partnerships, and S corporations all enjoy this no-double-taxation life.
Tax Reform Wins: How Business Owners Can Save Money
2018 is looking up for business owners all over the board. Through the new bill, pass-through entities can deduct 20 percent of the business income that is passed to their individual return. This makes it a great option for low- to mid-income businesses (single-filing threshold is set at $157,500 and the joint-filing threshold at $315,000).
Pass-through structure not in your cards? C Corporations will catch a break with the new tax bill, with a cutting the corporate tax rate cut from 35 percent to 21 percent. A tax professional can help calculate your breaks if you’re above the 20-percent deduction threshold, or if your business is under a different tax classification.
Not every situation has a cookie-cutter solution when it comes to business taxes. If you’re a business owner, a tax professional can also help you decide on the most cost-efficient business entity and what tax reform means for you.
Learn more about taxes for businesses at BizSolutionsNetwork.com.