The new tax law is full of good (and bad) changes to the tax law. I’ve put together a list of tax law changes that you may not have heard about, but nonetheless could be a welcomed surprise when you file your taxes in 2019 for the 2018 tax year.
The Child Tax Credit just got bigger and more taxpayers will qualify for the credit
This change was HUGE!
Under the old tax law, a taxpayer could claim a tax credit of up to $1,000 per child under the age of 17. The credit began to phase out for taxpayers with an adjusted gross income (AGI) of $75,000 for single filers and $110,000 for married filers.
Under the new law, the credit has been doubled to $2,000 and the phaseout limitation has changed to $200,000 for single filers and $400,000 for married filers.
For a simple married couple making $200,000 jointly with two children, they would go from having zero child tax credit under the old law to receiving $4,000 of child tax credits ($2,000 for each child) in 2018.
For even more of a tax break, a $500 non-refundable credit is provided for certain non-child dependents.
So if mom or dad has moved back into your house, at least you will get a bit of a bonus back at tax time!
An increased Standard Deduction
Under the old law, the Standard Deduction for taxpayers who do not have enough individual deductions to itemize, were to be $6,500 for single filers, $9,550 for heads of household, and $13,000 for married individuals.
Under the new law, the Standard Deduction has increased to $12,000 for single filers, $18,000 for heads-of-household and $24,000 for married individuals filing a joint return
So who is this really a break for?
If you look at the itemized deduction form, a few of the biggest deductions on the form are mortgage interest and real estate taxes. It’s common that if you don’t have either of those deductions, you fail to qualify to itemize your deductions. So for individuals that live in apartments, don’t own a home and typically take the standard deduction, this could be a welcomed tax break. Also, this could be a break for individuals who have already paid off their mortgage and recently moved from always itemizing their deductions to taking the standard deduction.
Expanded use of 529 account
529 accounts are famously used as a tax-efficient savings vehicle for college. You can deposit funds into the account and receive a state tax deduction in some states (including Missouri). Once the funds are in the account, they can grow tax-deferred and if the funds are used for qualified higher education expenses, the funds can be withdrawn tax-free.
As part of the new tax act, qualified higher education expenses include tuition at an elementary or secondary public, private or religious school, up to a $10,000 limit per tax year.
If you are considering a private high school for your children, you can receive all the benefits of saving within a 529 plan account that would normally be reserved for college funds.
Temporary 100% first year depreciation deduction for business owners
Under the pre-Act law, taxpayers received an additional first-year bonus depreciation deduction equal to 50% of the basis of the qualifying property. The property had to be new property of which the original use began with the taxpayer.
The new tax law changed a 50% deduction to a 100% first-year deduction for qualified property placed in service after September 27, 2017. A big change is also removing the restriction that the property had to be new property and now the deduction is available for new AND used property.
The new tax break shouldn’t be confused with the Section 179 expense rules which are also used to fully depreciation new and used equipment. It should, however, give taxpayers another way to receive upfront deductions for business equipment purchases.
Passenger auto depreciation limits increased
Thinking of buying a car for your business?
The IRS limits on how much depreciation you can take each year on passenger autos in your business. Pre-tax Act, the maximum amount of depreciation you can take on a passenger auto was $3,160 for the first year, $5,100 for the second year, $3,050 for the third year and then $1,875 for the fourth year and later. As you can see, for a high-end passenger vehicle, it would take a long time to fully receive deductions for the entire cost of the vehicle.
Under the new law, the maximum amount of first year depreciation is increased to $10,000, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth year and later. This is a substantial increase from the pre-tax law depreciation amounts and allows for a quicker depreciation recovery period for higher-end passenger autos.
Taxpayers usually focus in on larger trucks and SUVs that are more qualified for higher business vehicle tax deductions. The increase in luxury auto depreciation limits makes buying a passenger vehicle for your business more appealing!
Hopefully, one of these five changes to the tax law will assist you at tax time. Maybe you will even look forward to having your taxes completed in 2019!