Spring is the time of warmer weather, beach vacations and, yes, taxes. Your 2018 tax filing is the first to be affected by the changes resulting from the Tax Cuts and Jobs Act (TCJA) of 2017. While the act lowers payroll taxes, it also lowers or eliminates certain deductions and credits, which may negatively affect your tax refund in a number of ways:
- Higher standard deduction — Perhaps the change that affects the greatest number of taxpayers, the standard deduction has increased from $6,350 to $12,000 for individual filers, and from $12,700 to $24,000 for those filing jointly.
- Limits on itemized deductions — The TCJA balanced the higher standard deduction by eliminating many itemized deductions, including unreimbursed employee expenses such as professional association dues, home office supplies and equipment, business dining, and so on.
- Higher child tax credit and end to dependent exemptions — The child tax credit doubled, from $1,000 to $2,000, and is fully available to couples with household incomes of less than $400,000, when the credit starts to phase out. But gone is the previous $4,050 dependent exemption.
- Changes to alimony tax — For those whose divorces were finalized after December 31, 2018, the deduction for alimony payments and the tax on alimony income have both been eliminated. As a result, the net loss to the divorced couple is significant because the higher earning spouse — the one making alimony payments — loses the benefit of a significant deduction, which often reduces adjusted income into a lower tax bracket.
- Lower SALT deductions — For taxpayers with high state and local taxes (SALT), the TCJA’s $10,000 cap on SALT deductions is a significant loss. Florida is not in the group of high-tax states, but if you pay more than $10,000 in property and other state and local taxes, the cap will reduce your deduction for 2018.
- QBI deduction for pass-through entities — Individual pass-through entity owners, such as sole proprietors and owners of limited liability corporations (LLCs) and S corporations, may be able to take a qualified business income (QBI) deduction. The deduction can be up to 20 percent of an owner’s share of passed-through QBI, but the law is complex. Restrictions apply for certain income levels and types of businesses and conditions, so it’s helpful to consult an accountant to find out how the law applies to your business.
For those with significant changes to income, it’s especially important to understand the implications of these changes to the tax code. If you are expecting a settlement or jury award resulting from a personal injury or other civil litigation matter, ask your lawyer about any tax consequences.
Frank Charles Miranda, P.A. represents Florida clients in various legal matters, including personal injury claims and real estate issues. Please call 813-902-3925 or contact us online to make an appointment for a consultation at our Tampa office.