The what? Most people refer to this as Trump’s Tax Plan. Love him or hate him, he was able to pass the most revolutionary and complex tax law in history.
The tax law changes are so numerous and involved, I cannot go into any depth here, so I will give a few things to watch out for.
In addition to many new tax rules, most of the tax forms changed (to make things easier). The old 2 page form is gone and there is a new postcard size form. The only kind of taxpayer that will find this easier is someone who only has a W-2. If you have anything else going on, there are new forms and schedules to complete. This is going to cause a lot of confusion for many people and be the catalyst for many mistakes.
If you have your own business, be on the alert for the 20% pass-through deduction. Many independent contractors and business owners, including shareholders from S Corps and partners in a partnership, will get this deduction. There are very complex rules and there are certain industries that may not qualify. Some rentals may qualify for this as well, if the rental rises to the level of a trade or business. Again these rules are very complex, so I recommend going to a tax expert if you think you might qualify. The penalties for taking this deduction if you are not entitled to it get very high very quickly.
The child tax credit has increased to $2,000 for each eligible child with the phase-out being much higher than in the past. This is going to help many families.
The changes to 529 plans were generous. With the new tax law, distributions from 529 plans of up to $10,000 per beneficiary can be used for elementary or secondary education (K-12) at private or religious schools.
Business meals are still deductible but entertainment expenses are gone. Basically, if it is fun, you can’t deduct it.
Employee business expenses are gone. Be aware that the State of Hawaii still allows these, so if you have gotten this deduction in the past; keep track of it to see if you can still qualify for it on your state tax return.
All in all, what I have seen already is that most people are better off under the new tax law. Most are paying less taxes under the new 2018 rules. What many people don’t realize is that if you are a W-2 employee, the new payroll tax tables already accounted for the tax decrease, so there was less withholding per paycheck throughout the year. This may result in a lower refund. It’s certain that many people didn’t even notice the extra money in each paycheck and are going to be surprised at their bottom line when they file their tax returns.
In all the conferences I attended this year on the new tax law, the common theme was that this new law is so complex and was written with so many gray areas, that it’s going to take years for the IRS and for most tax professionals to get a handle on certain aspects of it. It’s best to get professional advice if you are uncertain about parts of the new law.