On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act, the most sweeping tax code update in 30+ years. Almost every individual and corporate taxpayer is impacted in some way, either positively or negatively. We’re now in the middle of 2019 tax “season,” preparing and filing the first set of tax returns impacted by the Trump tax cuts. Most pass-through returns were filed on March 15th, and we’re busy now with individual and corporate returns now.
And the early returns are in….
Based on the tax returns that we’ve filed to-date, we’re starting to see what appear to be some trends. I’ve shared this information below, but, as they say, your actual results may vary. While everyone’s tax returns will most likely be affected, we won’t know your specific impacts until we can input your data and run all potential scenarios. One big initial surprise is that a number of clients are unaware of the changes. Here are some additional thoughts:
You may be positively impacted if you:
- Have children under 17. Some are seeing larger refunds due to the increased child tax credit.
- Are a principal in pass-through businesses. The new 20% qualified business income deduction may apply.
- Were affected by Alternative Minimum Tax. Higher exemptions mean far fewer will fall under AMT.
- Had lower itemized deductions last year. The standard deduction is much higher this year.
You may be negatively impacted if you:
- Pay high state and local taxes. The new $10,000 SALT limitation hurts worse if you live in states like New York or California.
- Deduct unreimbursed business expenses. Employees can no longer deduct mileage, cell phone charges, lunches, etc.
- Pay high brokerage and investment advisor fees. These also can no longer be deducted.
- Have a big family. The personal exemption has been eliminated.
Don’t judge your taxes by your tax refund!
You may have read stories of early tax return filers complaining about smaller refunds. Many of those situations were caused by automatic withholding adjustments, making paychecks a little larger and withholdings (and refunds) a little lower. Their withholdings were just more accurate, meaning there was less tax overpayment to refund.
Were the Trump tax cuts good for individuals and businesses?
No comment. We’ll let you make your own decision after you see your tax return. One thing we do know for sure is that we need extra time to run all potential tax scenarios and get you the best result possible. Please turn in your organizer and documentation as soon as possible.
I’ll send out an update on this topic at the end of tax season, after I catch up on sleep.
Neal Bach, CPA