How Will the “TCJA” Affect Me or My Business?

How Will the “TCJA” Affect Me or My Business? by Nadine Riley{7 minutes to read}  This October the curtain came down on the 2017 tax year. Now, all eyes are focused on how the Tax Cuts and Jobs Act (TCJA) will impact the 2018 tax year, and How will I be affected?

By now, we are all aware that Washington has enacted a major tax legislation which affects all taxpayers, namely individuals, businesses, tax exempt, etc. Tax year 2018, will be like no other year.

When a law has been enacted, the IRS and other state agencies will provide tax guidance on how these laws are implemented. As of the date of this new article, the implementation of the law for some taxpayers is still a work in progress. The last update from the IRS was provided in August 2018.

With less than 3 months to go before the year ends, is there still time to plan?

The response is an unequivocal YES, although the IRS and some state taxing agencies are still providing tax guidance on the new tax rules. For the most part, tax rules for individuals are complete — however, there are some areas of pass-through entities that are still a work in progress with regard to whether your business is able to take the IRC § 199A’s new 20% deduction.

Taxpayers with withholdings – We strongly suggest that every taxpayer with withholding, whether from a W-2 job, retirement or Social Security, do a withholding tax planning consultation. This is necessary, especially if you have itemized in the past. There’s very little time left to act on this. Don’t be caught off-guard in spring of 2019.

This year we have written at least four business and personal articles in an effort to bring to light how the new tax rules will affect us. As much as we would like to move on to another topic, we are not able to do that as yet, in light of the importance of this topic and the fact that wheels are still turning with more updates pending. Here are links to our previous articles:

Welcome to the 2018 Tax Season

How Will the New Tax Laws Affect You and Your Business in 2018?

Don’t Wait! Get the Tax Guidance You Need Before It Is Too Late!

A few individuals have taken advantage of the tax planning consultation in an effort to cushion the effect of the new tax rules. Though I would like to report that all the results were favorable, for the most part there was a notable tax increase ranging from $4,000 to $19,000. For example, considering an increase in taxes of $19,000, an individual who may have received a refund of $3,000 under the old tax law could find him or herself sending a check of $16,000 to the IRS. Planning ahead is crucial because it can reduce or manage your tax impact. Only you can decide as to whether you would rather be caught off-guard or put a plan in action to reduce your tax bill.

The intent of this article is to share what has changed since we last wrote, and to reiterate the need for a tax planning consultation with your tax accountant. Certain expenses are no longer deductible or have been reduced. While we cannot cover every possible scenario, we aim to provide some guidance on who needs a tax planning consultation below:

  • If you earn over $38,700 (or $77,400 married filing jointly), regardless of how your income has been earned, there is a notable 10% jump in taxes once your earnings exceed the above range.
  • If you have income from any sources other than a W-2 (pass-through entities, dividends from your corporation, etc.).

A caution to all pass-through entities (these are Schedule C freelancers, LLC, partnerships, S-Corp, just to name a few). If your income is above $157,500 (or $315,000), a comprehensive tax planning analysis is necessary. Though there’s a well-publicized additional deduction for these entities, there are limitations as to whether a taxpayer is qualified to take the additional deduction. This is all the more reason why we cannot finish the year without evaluating your numbers, while we still have some time to plan. Please review the last article sent in detail:

All Pass-Through Entities: Tax Planning is Imperative This Year

  • If you have itemized in past years, meaning you had a Schedule A as part of your tax return package.

Form Schedule A reports, medical expenses, State and Local Taxes (SALT) which includes property taxes, income tax, sales tax, mortgage interest, charitable donations, unreimbursed employee expenses, etc. (Beginning in 2018, there is no deduction for unreimbursed employee expenses.)

So how are the states working to help taxpayers cushion the effect of the limitations on (SALT) deductions?

There’s a new term going around known as “Salt Workaround” or just “Workarounds.”

Various states are permitting municipalities to set up charitable funds and allow taxpayers to contribute to them. Basically, the intent is to redirect where you donate your money. If you choose to put some money in your state-designated programs, your state will give you favorable treatment for your donations to their causes. The general treatment of this is a deduction — the states will now treat it as a full or partial credit, with some limitations.

Here’s What to Expect from NYS:

NYS created a website that is designated to this only. Taxpayers can make donations to the Health Charitable Account and the Elementary and Secondary Education Account. For more information, click here or call NYS at 518-45-5181.

The IRS and US Dept. of Treasury continue to frown on this practice and have implemented certain restrictions. New York, New Jersey, Connecticut and Maryland have taken some very bold steps to push back, claiming the federal actions are unconstitutional and have filed a lawsuit. The battle continues.

In closing, let’s not negate the power of preparation (“planning”) and how beneficial it can be. Here is what two great public leaders shared on the subject of planning and timing:

“…plans are of little importance, but planning is essential;”  — Winston Churchill

The time to repair the roof is when the sun is shining.” — John F. Kennedy

Please contact us to schedule your 2018 tax planning consultation. The time to act is now.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301