On Monday, November 11, all Pinnacle offices will be closed for the Veterans Day federal holiday. 2024 Federal Holiday Closures
On Monday, November 11, all Pinnacle offices will be closed for the Veterans Day federal holiday. 2024 Federal Holiday Closures
Listen to a Pinnacle podcast about the new tax law and what it could mean for you. It was recorded at a live panel discussion hosted by Brian Manning and featuring Steve Parker, Lauren Allen and Paul Anglin, all CPAs with Blankenship CPA Group.
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Though it dominated the news cycle for months as it worked its way through Congress to the president’s desk, many people may not be fully aware of how the Tax Cuts and Jobs Act actually affects them.
The news may be mixed for individuals because reductions in tax rates could be offset by smaller deductions in some areas. But for business owners, the news is much better, even if you may have to put in some additional work to take full advantage of lower rates.
Regardless of what kind of form you’re filing, be sure to work with your CPA or tax professional for the full details of the new tax law and how it will affect you.
If you’re an entrepreneur or business owner, your tax bill has probably been cut – maybe dramatically. The corporate tax rate has moved from a tiered system to a flat rate of 21 percent. For most businesses, that’s a huge reduction. But for a few smaller businesses, it actually could be an increase.
That’s where things get a little complicated.
For pass-thru businesses – those where income and expenses are taxed on the owner’s individual tax return – additional deductions are available to bring their rates closer to the corporate rate. Depending on your income, some limitations and exceptions to these deductions could bring your bill higher.
Getting to your final bill could be a very complex journey, with percentages of income and property or even what kind of job you have determining how much you pay. A qualified CPA can help you navigate and get the most out of your eligible deductions.
One side effect of the changes to the corporate tax rate is that some small businesses are considering incorporation as a way of taking advantage of the lower rate. Rather than dealing with the complications – and potentially higher rate – of a pass-thru entity, ask your CPA and financial advisor about forming an LLC, where you have the option of filing as a corporation or an individual.
The large majority of changes for individuals won’t take effect until you file your tax return in 2019. You may see a lower rate reflected in the tax withholding on this year’s paychecks, but you won’t have to worry about most of the deductions and exceptions until next year.
That said, most individuals will be taxed at a lower rate than before. The tax brackets are the same, but the rates have changed for each of them, ranging from 10 percent to 37 percent.
For those who spend the year counting up tax deductions and saving receipts, you may not have to this year. The standard deduction has doubled, meaning those who typically itemize should look at previous years’ deductions to see how they compare to the new law. You might be able to save money and time by just taking the standard deduction.
That increase in the standard deduction may also affect your charitable contribution habits. Rather than give in amounts that don’t meet the standard deduction, some may decide to combine annual contributions into a single larger amount given every other year to be able to take advantage of the deduction. However, it’s important to consider how this will affect budgeting for your favorite non-profit. These organizations may experience a sharp reduction in annual giving if enough people use this tactic.
Another area to note is that most deductions on Home Equity Lines of Credit, or HELOCs, are no longer included in the tax code. Luckily, conventional mortgage loan limits have risen in 2018, giving some homeowners the opportunity to refinance their HELOC into their mortgage and still enjoy a deduction on interest. You can learn more about this here.
As always, your CPA or tax professional can give you the best advice for your particular situation. No one’s tax returns are identical, which is why they need careful planning and examination to make sure you’re within the law and taking full advantage of what the code allows.
Brian Manning is the office leader at Pinnacle’s office in Goodlettsville, TN. He can be reached at Brian.Manning@pnfp.com or by calling 615-690-4076.
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