A Guide for Our Readership Demographic
By Paul Smart
It’s tax deadline time. The politics of the partisan Tax Cut and Jobs Act of 2017 are likely to ripple through the coming years as many have just started seriously looking at the law’s needed fixes — par for the course for any big legislation these days. When it all went into effect on January 1, the law immediately lowered the top corporate tax rate from 35% to 21%, effectively doubled the federal estate tax exemption, eliminated or limited most itemized deductions, and created a new 20% deduction for pass-through income for some tax payers.
We’ve been hearing that a lot of the most important impacts are more for corporations and higher wage-earners than our regional readership demographic. Let’s look at some of the key simplifications and areas of changes, from a local perspective.
First off, itemizations. The new tax law has gotten rid of, or modified, many exemptions and deductions for individual income tax. The personal exemption of $4,150 per taxpayer and dependent has been eliminated while the standard deduction has increased from $6,500 to $12,000 for individuals and $13,000 to $24,000 for married couples who file jointly.
The deduction for interest paid on mortgage debt has been lowered from $1 million down to $750,000. The “floor” for deducting medical expenses has been lowered from 10% of adjusted gross income down to 7.5%. The child tax credit has been doubled, from $1,000 to $2,000, and the refundable portion of that credit is allowable up to $1,400 (with a new credit of $500 for other dependents); but all such deductions now phase out at income limits of $200,000 (single) and $400,000 (married). There’s also an expansion of 529 savings plans that will now allow families to save for K−12 expenses, in addition to college expenses — up to $10,000 per year, including those who are being homeschooled.
The bigger changes seem to be reserved for those looking to lessen their business tax loads. There’s a new 20% deduction on “pass-through” business income (partnerships, limited liability companies or sole proprietorships where the business is not taxed on its own and profits pass-through to individual owners, where they are seen as part of an individual’s income), with the deduction limited to 50% of W-2 income above $157,000 (single) and $315,000 (married). Some are saying this will force some to try and reclassify as consultants instead of employees; others point that it’s all aimed at attorneys, accountants and financial professionals who will be excluded from taking the deduction above a 50% of W-2 income limit.
For those claiming businesses, be prepared for some higher taxes next year. Furthermore, expect some tougher measures from the I.R.S. as it works to make up for lost tax revenues; among new items in their enforcement fold are the ability to revoke passports for those who they term to be “seriously delinquent,” as well as a new ability to hire private contractors for collection.
As for those glitches we’ve been hearing about: One inadvertently denies restaurants, retailers and others new write-offs for things like remodeling. Another creates two different start dates for certain rules. Typos have shifted the intention of some legal changes; much hay is being made whether the law’s intent was to allow farmers who sell grain to cooperatives to avoid taxes entirely or NOT allow anything of that sort.
We’ll be hearing more about all of this, including effects of the tax law on our healthcare, over the coming years. Of that we’re certain.