Major changes on 2018 Tax Code
The 2018 tax season is just around the corner. As you might know, there were big changes on tax code December 2017. The congress has passed the new tax 2017, which is called TCJA (Tax Cut and Jobs Acts). The followings are summary of the TCJA and we hope the summary will be helpful for your 2018 income tax return.
- Individual Income Tax Return
- Increase of standard deduction amount: If you file married joint in 2018 tax return, the standard deduction is increased to $24,000 from $12,700 of 2017. This deduction has nearly doubled for the 2018 tax year and the increase also has applied to other tax return filers (single, head of household etc.). So we expect that most filers prefer to choose standard deduction instead of itemized deduction which itemizes property tax, mortgage interest and donation as deductions on your taxes.
- Increase of child tax credit amount: The amount of child tax credit has been raised to $2,000 per qualifying child, those who are under age of 17 as of 12/31/2018, up from $1,000. The requirements of qualified dependents for child tax credit become stricter, which means that your dependents must have Social Security Numbers.
- Repeal of Alimony tax treatment: Alimony and separate maintenance payments are no longer deductible, and the recipient does not claim the payments as income. This goes into effect for any divorce or separation agreement signed or modified on or after Jan. 1, 2019 (not 2018).
- Donation: The donation limit you can claim on income deduction has been increased to 60% of AGI (Adjusted Gross Income) from 50%.
- Repeal of personal and dependency exemption: While tax reform increased the standard deduction, it also eliminated personal exemptions entirely.
- Business Income Tax
- Income deduction of 20 % of Qualified Business Income: If certain requirements are met and your business entity is S corp or Partnership, you can deduct 20% of your business ordinary income from your taxable income. This is a huge tax favorite for small business owners and we estimate that many small business owners can get tax savings.
- Change in C corp. tax rate: The tax rate for C corp. is changed to flat rate 21%.
Before the change, the rates for C corp. were between 15%- 35%. This change also applies to PCS (Personal Service Corp.) such as lawyers, doctors and accountants while the former tax rate for PCS was flat 35%. Therefore most PCS will also get tax savings from the change.
- Change on Meals and Entertainment Expense: The entertainment expense is no longer considered a deductible expense, even though you think the expense is necessary for your business. As for the meals, you can deduct 50% of the meal expense like before the change, but the requirements become much stricter.
- Increase of Allowed or Allowable Depreciation Expense: You can claim depreciation expense up to $1,000,000 if you invested on your business during 2018 and certain requirements are met.
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Please contact us if you have any questions on the summary or want to know more details.
Daniel Choi CPA, Inc
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