Tax law isn’t static; it’s constantly changing. Deductions that were available last year aren’t available this year, the amount you can deduct changes, and there are even changes in how dependents work for deductions. We’re asked all the time about this, so here’s what you need to know about the three biggest changes to tax deductions in 2018.
QBID Means a 20% Deduction for Small Businesses and Entrepreneurs -- (With a Few Exceptions)
The Tax Cuts and Jobs Act of 2018 made a brand new deduction that is rather complicated. There are four factors that you’ll need to consider for how much of the Qualified Business Income Deduction (QBID) that you qualify for. Here’s what to think about.
- The nature of your business (Sole proprietorships, partnerships, S Corporations, LLCs taxed as sole proprietorships, partnerships).
- The taxable income of the business owner
- How much the business pays employees
- If the business owns property
All of these things factor heavily into how much of the 20% deduction your business qualifies for. A surprising number of people don’t qualify for this refund (doctors, lawyers, and many consultants), so if you heard about this deduction and are surprised that you don’t qualify, it’s time to talk to a tax pro at CSI to figure out a new plan.
Your dependents are now a flat deduction.
Gone are the days when you could count on a dependent exemption for bigger tax savings at the end of the year. Instead, the Tax Cut and Jobs Act (TCJA) has created a bigger standard deduction across the board -- no matter how big or small your family is.
- 12,000 for singles (nearly double the $6,350 in 2017)
- $24,000 for joint-filing married couples ($12,700 in 2017)
- $18,000 for the heads of households ($9,350 in 2017)
The elimination of this dependent exemption could hurt or help, depending on the size of your family (the smaller, the better). There are also more generous child tax credit rules, and credits for dependents who are ineligible for the child tax credit. These are pretty major overhauls, which is why it’s good to check in with a tax pro to sort your situation.
A lot of the deductions you used in the past are gone.
While the increase in standardized deductions is great, the benefits of personal or dependency exemptions are now gone. So are unlimited state and local tax deductions. You can no longer deduct for moving expenses or have unrestricted deductions related to natural disasters. Ditto for unreimbursed employee expenses or alimony deduction. So while the increased standardized deduction is good in some ways, it could prove to be a bummer to others.
This is why it’s so important to look at this while you still have time. You have two months to properly plan and work down taxable income and reduce tax liabilities. This is why it’s so important to not just treat your accounting like a yearly checkup, but a continued discussion with your accounting firm -- so that you can see how tax law changes your bottom line, and how you can be empowered to do something about it.
"An annual tax accountant is looking in the rear view mirror to see what happened last year and make sure your taxes are done correctly,” says Angela, an accountant at CSI Accounting.
“A monthly accountant is for planning for the future to make sure that you don't end up owing more than you need to."