By James A. Chaston, CPA
Changes to Individual Taxes
Taxpayers either take itemized deductions or the standard deduction whichever is greater. In 2017, the standard deduction for a married couple was $12,700, for 2018 it is now $24,000. As a result, most people that used to itemize
now will just claim the standard deduction. Which also means, that your mortgage interest, state taxes, charitable deductions, work related expenses and medical expenses will provide NO TAX BENEFIT when you claim the standard deduction. Singles are half of Marrieds and Heads of Household is 75% of Marrieds.
Personal Exemptions, which in 2017 provided a deduction for each person and dependent of $4,050 is now gone. It has been replaced by an increased or new dependent credit. For dependents 16 and under, the credit increased to $2,000 from $1,000 and the phaseout of this credit increased from $110,000 to $400,000 which means that for many two income homes, they will actually get this credit now. For dependents over age 16, there is a new $500 credit per dependent.
Mortgage interest is only deductible for proceeds that go directly to purchase or improve the property, proceeds that pay for other items are not deductible and you must prorate the deductible and nondeductible portion, this includes wrapping refinance costs into the new loan, interest for these costs are no longer deductible. Only interest for loans up to $750,000 for up to two properties is deductible, loans above this is not deductible.
Work Related Expenses are no longer deductible for those that can still itemize deductions.
State Taxes paid are limited to $10,000 for those that can still itemize deductions. This is only for Federal Taxes, Arizona
did not change the standard deduction, it is still $10,336, so many taxpayers will claim the standard deduction for Federal, but still have to track and file itemized deductions for Arizona.
Alimony, moving expenses, investment expenses, casualty losses, union dues, tax preparation fees all no longer deductible.
Changes to Small Business Taxes Small Business Owners get a 20% deduction for Qualified Business Income, this is quite convoluted and not as straight forward as you might think, talk to a tax professional about this one. But basically, if you make $50,000 of qualified business income you get a $10,000 deduction and pay tax on $40,000, not $50,000.
Entertainment is no longer tax deductible, but just recently the IRS clarified that business meals are still 50% deductible.
Depreciation changes, for the most part you can depreciate 100% of equipment purchases and much more on vehicles than prior years.
Like-kind exchanges only available for Real Property and more clarification that they are not available for fix and flips.
Cash Basis is available for all companies with less than $25 Million in gross sales and they can automatically change back.
Flat rate for C Corporations of 21%.
This column appears in the November issue of InMaricopa.