Greenfield News

Tax Cuts and Jobs Act

It has been two years since the Tax Cuts and Jobs Act (TCJA) passed, but 2018 was the first year that most of the provisions were active. The 2019 tax season was the first real test of the new tax law for taxpayers and tax preparers alike. While it made some parts of the tax code simpler, there are reasons the TCJA has been referred to as the "Accountant's Full Employment Act." Thankfully, the IRS is backing off its attempt to fit the 1040 on a postcard.

In general, people saw lower taxes... but their tax refunds were also lower. That is because the IRS changed the tax withholding calculation for paychecks. They wanted people to see more of the benefits of the tax cuts throughout the year, and they did. However, it came as a shock to some people when they prepared their tax return and the lower withholdings did not cover the lower taxes. The IRS has updated the calculations again in 2019, but it is still a good idea to check what you have had withheld before the end of the year, just to avoid any surprises this year.

The increased standard deduction, $24,400 for married filing joint in 2019, has significantly decreased the number of people using the long form, Schedule A: Itemized Deductions. A big reason for the decrease is because of the $10,000 limit on state and local tax deduction, which affected more people than I expected. Without either significant mortgage payments or charitable contributions, the standard deduction was almost always the better choice for 2018 tax filings.

Business owners saw the biggest benefits from the tax reform. For the next three years, until January 1, 2023, most business assets can be completely expensed in the year they are purchased rather than having to depreciate them over several years. If you need to buy new equipment, now is probably a good time for it from a tax perspective.

The new qualified business income deduction has provided the biggest benefits and the biggest headaches in tax preparation. This deduction is equal to 20% of the net income from most LLCs, partnerships, and S corporations. There are a few other hoops to jump through, and high-income business owners have a couple extra computations to go through to claim the deduction, but the tax savings are substantial. These changes make this an excellent time to reevaluate partnership and operating agreements.

One of the areas where the tax code tightened business deductions is in meals and entertainment. Business meals are still 50% deductible (just make sure you have good documentation); however, entertainment expenses are not. There is no longer a deduction for taking a client to a ball game.

Individual circumstances may vary. Talk to your accountant for details.

David M. Hoover, CPA
Kemper CPA Group, LLP Certified Public Accountants and Consultants
332 E Main St, PO Box 9, Greenfield IN 46140
317-462-3401