All You Need to Know About Recent Tax Reforms and the Importance of Hiring a Professional Tax Accountant
In case you needed a nudge, the deadline for filing taxes in the US is April 15, or April 18 for the e-filers. Yes; taxes – as unpleasant and unavoidable as they may be, writing a check and the deductions from your bank account pays for the benefits citizens gain from in a society. It pays for the street you drive on, the govt employee that fills the pothole, healthcare, environmental regulations, and the preservation of the Bald Eagle. It also pays for the 2.7 million federal employees (according to the Bureau of Labor statistics), and the individuals who put their lives on the line every single day to protect America and our way of life, (including our right to complain about having to pay taxes).
Now that you’re feeling smug about all the goodness your checkbook brings, let’s get down to business. When it comes to taxes, you can assume that everything is going to be put under a microscope. With that in mind, gaining precise knowledge of the latest tax reforms, coupled with the expertise and forward-thinking perspective of a tax accountant St. Cloud, FL can help see you through new and unfamiliar challenges. To save you the anxiety, here are some things all those who are filing their taxes this year need to know.
Tax Cuts & Jobs Act (H.R.1)
On December, 2017 The Tax Cuts and Jobs Act also known as H.R. 1 was passed by both houses of Congress. The reason individuals need to be privy to the new tax laws is because it contains quite a few provisions that may result to significant tax cuts for many individual taxpayers, albeit not all of them. These changes in tax reform will be applicable only between 2018 and 2025 due to legislative and budgetary constraints, but they will impact individual taxpayers.
New Tax Rate Schedules
The new tax law reduces the taxes for many individuals, especially:
- Recent college grads – Single filers under the age 30, earning an annual income of around $75,000.
- Young married professionals – Joint tax filers between the ages of 30 and 40, with one child, earning annual aggregating income of $300,000.
- Married professionals with qualified business income – These individuals fall under tier 2, but with the exception that they are eligible for a Qualified Business Income from pass-through entities, as in, doctors with S-Corp or attorneys.
- Retired executives – These are married joint filers, aged 70+ with an average $300,000 pension, with long-term capital gains of $100,000, qualified dividends reaching $200,000 and $25,000 in interest, including medical expenses averaging $100,000.
While this breakdown may vary, and can seem complicated, it’s nothing a qualified tax accountant in St. Cloud, FL can’t handle. It’s also important to note that residents of states that have no personal income tax, such as, Texas, Florida and Nevada should expect substantial tax cuts, another reason why hiring a tax accountant in St. Cloud, FL is so crucial to getting the math right. The two tables below show individual taxpayers the specified tax rate schedules for their regular taxable income;
The good news is, the 503-page law makes it easy for millions of Americans filing their taxes this year to shave extra bucks off their taxes by making some smart moves. While seven tax brackets under the current law range between 10% and 37%, most of the tax rates are lowered by several percentage points, which will make a significant difference for individual taxpayers this year. Simultaneously, bracket thresholds have also been raised, (with married joint filers seeing the most significant raises). According to the experts, the lowered rates coupled with significantly higher bracket thresholds that the new law introduces will equate to lower income tax liability for many taxpayers. That said, there are also going to be many taxpayers who see their federal income tax liability increase from now on as a direct result of the new changes to the higher taxable income rules, which has eliminated many tax deductions that were in the past, utilized by individuals to lower their taxable income. Having a professional tax accountant in St. Cloud, FL by your side will enable you to make the most of the new laws.
Mortgage Interest Deductions
Homeowners are allowed to itemize their taxes to reduce their mortgage interest payments on mortgages of up to $1 million. New limitations reduce these reductions to mortgages of up to $750,000. However, this change will not affect current homeowners, but the amount is capped at $750,000 for future home buyers (mortgages taken out after Dec. 15, 2017). In other words, homeowners who are currently paying mortgages will be grandfathered in and will be allowed to deduct the interest of the mortgage of up to $1 million. The act has also eliminated deductions for home equity loan interest. This makes it possible for married couples who are filing their taxes together to deduct home equity interest on loans up to 100,000.
What About the Marriage Penalty?
The law that required married couples to pay more income tax than those who are single has been removed from the current H.R. 1, except for those who end up in the highest income tax bracket. The law lowers itemized medical deductions from 10% to 7.5%, but this will return to 10% in 2019. It is important to note that no changes have been made to the W-4, so as soon as the W-4 comes out, you will want to have a tax accountant in St. Cloud, FL take a look to make sure the correct amount has been withheld. According to the experts, it’s important for those families where both spouses are working full-time to decide whether they would want to update their W-4 when the withholdings change. Those families who are used to receiving a big refund, can see those payments being made throughout the year from now on. So, turns out, marriage can really help reduce the tax burden if you file jointly.
Child Tax Credit
Current child tax credit stands at $2,000 per child, which is counted as a credit rather than a deduction, but it reduces your tax bill by up to $1,000 per child. The new tax plan also distinguishes who is eligible for the credit, which can currently be availed only by those children who are younger than 17 years of age. A tax accountant in St. Cloud, FL can help you claim full credit if your annual income reaches $200,000 (single filer), which is up from $75,000, and $400,000 for couples, which is up from $110,000. The adoption credit will continue to be part of the new tax, which will be worth $13,750 per child.
State and Local Taxes
Under the new tax law, deductions to State and Local Taxes (SALT) have been capped at $10,000 for both married and single tax filers. The standard deduction for married couples under the new law has been doubled from the previous $13,000 to $24,000, which aims to compensate for the H.R.1 reduction to itemized deductions. While those individuals who were under $24,000 the last time don’t have to worry about this new change, those tax payers who are borderline, will be smart to have a tax accountant in St. Cloud, FL have a look at the new changes.
Other Key Provisions
The IRS issued new wage withholding tables on January, 2018, which indicates lowered rates of withholding on all supplemental wages. New rages are 22% for supplemental wages that are up to $1 million annually, and 37% of cumulative supplemental wages that’s in excess of $1 million.
New AMT Rules
While the same AMT stands, the new law has implemented a higher exemption amount along with a phase-out threshold to be eligible for this exemption. The good news is, due to the new changes, fewer taxpayers are going to be subject to this tax. That said, here’s the numbers.
The Alternative Minimum Tax exemption amount has been increased to $109,400 for married couples who are filing joint returns, and $70,400 for independent filers. Phase-out thresholds have been increased to $1 million for married joint filers and $500,000 for independent filers. In both instances, exemptions and threshold amounts are going to be indexed for inflation.
Another significant change to the new law is that the threshold at which point the credit fades has been increased to $200,000 for individual taxpayers and $400,000 for married taxpayers who file for a joint return.
Trump’s new law eliminates alimony deductions, which could be seen as subsidizing divorce. Those who find themselves in this strange predicament can hire a tax accountant in St. Cloud, FL to find out more about the new provisions.
According to analysis from the Tax Policy Center, the new tax laws significantly reduce taxes for individual tax payers and married couples, and pretty much all income groups, and will lead to an increase in after-tax income by an average of more than 2.2%.
Reasons to Hire a Tax Accountant in St. Cloud, FL
While all this has probably got you excited, and rightly so, the truth is, any deductions normally rise with income, but spending can be decoupled from a filer’s earnings for multiple reasons. It should also be noted here that in 2015, only 19% of income tax filers earning between $25k and $50k itemized. Those who did say an average deduction of around $16,154. Under the new act, single filers who earn around $40,000 and are looking to itemize are more likely to see an increase in their taxes. Since filers who fall under this group are less likely to benefit from this increase in standard deductions, and also stand the chance of getting hurt by the removal of personal and dependent exemptions, need to hire a professional tax accountant in St. Cloud, FL who can help guide them through the process.
The Tax Accountant in St. Cloud, FL is Your Fall Guy
Those who are getting ready to file their taxes should remember one thing. If you mess up the math, the Feds are definitely going to lock you up, or you might be charged the tax owed plus interest. In such circumstances, asking nicely won’t cut it. Since a professional tax accountant in St. Cloud, FL can help determine which of your expenses can be legitimately claimed to lower your tax income. In this way, the tax accountant in St. Cloud, FL acts as your fall guy and if mistakes are made (hey, nobody’s perfect!), the CPA will be responsible to clean up the mess with the IRS, so there’s no red tape for you to deal with. A CPA can do everything from filing your taxes to emailing the payment vouchers so you won’t need to lift a finger.
Going the DIY Route
If you’re a regular Joe, with a regular job, and some serious math skills, you may get away with using one of the online tools that are available for filing tax returns, but it would be wise to take your 1040 to a tax accountant in St. Cloud, FL for a quick glance-over. Just to make sure you didn’t mess up.
Let’s say you’re a resident of Florida who’s looking to file your taxes, the worst thing you can do is go in without the proper representation from an experienced tax accountant in St. Cloud, FL. A professional accountant will recognize the areas where you’re falling short and can help you get more tax cuts. It’s important to note that even in 2018, all charitable contributions and medical expenses are still eligible for itemized deductions, and fewer individuals are going to be subject to the AMT since the previous income tax deductions and miscellaneous itemized deductions that were subject to a 2% AGI floor no longer exist thanks to the new law. The bottom line is, whether you need a tax plan for your business, or basic tax compliance services, you are going to need the expertise of a tax accountant in St. Cloud, FL who has experience in dealing with the IRS and the State Revenue Department.