The Academy Awards are just around the corner. Will your tax returns be a “Bohemian Rhapsody” or more of an “Avengers: Infinity War?”
These are our nominees for winners in 2018 tax reform category:
Corporations will be walking the red carpet with a reduced corporate tax rate of 21% versus the past year rates of 35%. Most corporations will see a big benefit this year, although those with income of less than $75,000 may not appreciate the benefit of the new rate.
Small business owners who operate sole proprietorships, S-corporations, and partnerships will gain star status from the Section 199A deduction, which is 20% of your business income. This is a big winner but don’t discount the limitations on type of business, wages paid, and income earned, along with other unique situations.
Businesses that purchase large assets are in the spotlight as well. Under Section 179 of the Internal Revenue Code, a business could expense up to $500,000 of the cost of qualified business property, subject to a dollar-for-dollar phaseout above $2 million. The new law doubles the maximum allowance to $1 million and increases the phaseout threshold to $2.5 million. Spoiler alert: The maximum allowance is still limited to the amount of income from business activity.
Tax brackets were lowered across the board, but high-income payers will be the rising stars, seeing significant savings due to their larger incomes. The highest individual tax bracket is now 37% as opposed to 39.6% previously.
Embrace the Crowd! Large families will benefit with a child tax credit of $2,000 per child. There are no exemptions this year which offset the benefit of the credit, and there is an income phase-out of the credit if your joint income is $200,000-$400,000.
The envelope please…there are many other changes in the 2018 tax reform, and some may cause a round of applause for your family and your business. Call Debbie at C&B Accounting for your winning tax strategy!