Your taxes are due on Monday, April 15th this year. Like a lot of Americans, you may be wondering how the new tax laws will affect your financial life, especially if you own a business. For many people, taking the standard deduction is a better option this year. In past years, itemizing may have been a foregone conclusion.
The tax law changes represent a simplification, but for a lot of folks, understanding the new tax laws and applying them correctly opens up the possibility of making expensive mistakes.
Taxpayers can now deduct medical expenses paid out-of-pocket if they exceed 7.5% of their adjusted gross income. Previously, they had to have uncovered medical expenses that equaled 10% of their AGI. The limits on charitable deduction contributions went up from 50% of income to 60% of income. Student Loan Interest Deduction and Lifetime Learning Credit remain in place, but you can now use your 529 college savings plan to pay for private school or tutoring for kids in Kindergarten through 12th grade.
Business owners who handled the paperwork and filing of their taxes in the past should consider hiring a professional this year. Here’s why:
1. You can claim the Earned Income Tax Credit (EITC) or Child Tax Credit
Families with children under the age of 17 can claim the expanded Child Tax Credit, which doubled from $1,000 to $2,000. $1,400 of the credit is refundable. The phaseout threshold is much larger, too. Single filers who make over $75,000 per year couldn’t claim the entire credit in past years, but the threshold is now $200,000. Tax filers with a married filing jointly status who made more than $110,000 couldn’t claim the whole credit prior to this year, but that threshold is now much higher at $400,000.
ETIC, reserved for low-income filers, may get you a refund that’s larger than the amount of taxes you paid to the federal government via payroll deduction in 2018. If you qualify, you may want to explore your options for getting help filing your 2018 taxes to make sure you get the entire refund due to your household.
2. Your gross household income is over $200,000
Households with gross income over $200,000 may have a more complicated tax situation than lower-income taxpayers, especially if they also own a business. The capital gains tax system underwent significant changes. The mortgage interest deduction fell from $1 million to $750,000. The SALT deduction is limited to a total of $10,000. Alternative minimum tax exemption amounts are adjusted for inflation, so this may represent a tax break for higher-income households.
3. You own a business
The pass-through business income tax laws changed, giving business owners who are sole proprietors, partnerships, S corporations, and LLCs the ability to deduct 20% of their pass-through income before paying regular income taxes. This change alone is enough of a reason to hire a professional to handle your taxes this year.
Are the new tax laws have you feeling confused?
You aren’t alone. If your household situation changed with the birth or adoption of a child, marriage or divorce, or death of a wage earner, it’s smart to seek the help of a tax expert. These changes to tax law are the biggest in 30 years. If you have concerns about understanding the nuances and applying them to your household’s finances, this is a great time to hire a professional tax preparer.