At Pinnacle Accountancy Group of Utah, tax time is our favorite time of year. In December 2017, Congress passed the Tax Cuts and Jobs Act (The Act). The Act makes sweeping changes to the U.S. tax code and impacts virtually every taxpayer. These changes are now in effect when filing your 2018 individual and business tax returns. Individuals are more impacted by the provisions of the act than any other class of taxpayer. This update is to alert you to some tax changes from tax reform.
INDIVIDUAL TAX RATES: The Act reduced tax rates by 2-3% in each bracket and also made tax brackets wider. The individual income tax rates for 2018 range from 10% to 37% depending on your taxable income. Capital gain rates range from 0-20% depending on the income tax bracket.
STANDARD DEDUCTION: The Act doubled the standard deduction for each filing status (Single – $12,000 and Married Filing Jointly – $24,000). These increases may make it more advantageous to take the standard deduction instead of itemized deductions.
DEPENDENCY EXEMPTIONS: The Act eliminated dependency exemptions. In past years, there was a deduction ($4,050 in 2017) for each person living in a household. This deduction has been eliminated.
CHILD TAX CREDIT AND FAMILY CREDIT: To help mitigate the elimination of the dependency exemptions, the Act doubled the Child Tax Credit from $1,000 to $2,000. The Child Tax Credit is available for dependents age 16 or younger. The Child Tax Credit is phased out starting at taxable income of $200,000 for single and $400,000 for married filing joint returns. This means that more families will benefit from this credit. The Family Tax Credit is a new $500 credit available for dependents age 17-24 with similar phase out rules.
CORPORATE TAX RATES: The Act adjusted the tax rate for all C-Corporations to a flat 21%. Due tothis change, it may be advantageousto reevaluate the entity structureof a business. Companies that areS-Corporations, LLCs or Partnershipsmaybenefit from this flat tax ratebecause it could be lower than the rateon individual taxes.
PASS-THROUGH INCOME DEDUCTION: The Act created a new deduction for Pass-Through Entities which include LLCs, Partnerships, S-Corporations, Sole Proprietorships andrental activities. This deduction can beup to 20% of the income that is reportedon your return from a pass-throughentity. This deductionwill reducetaxable income which in turn will reducetaxes.
DEPRECIATION: The Act changed the requirements for an asset to be eligible for bonus depreciation. Certain new or used assets (including equipment, furniture, livestock, and some vehicles) acquired in 2018 are eligible for bonus depreciation. Bonus depreciation allows for the entire purchase price of the asset to be deducted in 2018.
At Pinnacle Accountancy Group of Utah, we strive to put our clients in the best position possible to pay the least amount of taxes. We offer free consultations to new clients to go over previous filed returns and discuss their current tax situation. If you have general tax questions or questions on how tax reform may impact you or your business, feel free to give us a call to set-up an appointment.