These are the biggest changes to the tax code since the 1980's.
Here's how they affect you.
The dramatic 2019 tax changes were the biggest IRS revamp since the 1980’s. The IRS is only now understanding how to interpret all of the comprehensive changes.
I recently attended a national tax conference where the IRS Deputy Commissioner of Small Business was the keynote speaker. The Deputy Comissioner said the IRS currently felt like they were flying an airplane while still building it.
Lawmakers made the tax changes, however it will take time to interpret how the IRS will apply the new rules.
Help is on the way: The IRS is issuing technical guidelines so tax professionals can give the best advice.
Here’s a summary of some of the bigger changes.
The average household has seen a significant reduction in their tax bracket. Tax savings under the new plan are about 2% less than before the Tax Cuts and Jobs Act. For a family being taxed on $100,000 this is a $2,000 savings. Many of my clients have found the decreased tax bracket more than makes up for lost deductions under the new tax code.
Families with children receive a higher child credit of $2,000 for children under the age of 16. Older dependents usually get a $500 deduction.
There is a 20% tax credit for people with small businesses or profitable rental real estate. Claiming the credit can be difficult. There are complex rules. The IRS has recently issued “safe-harbor” guidelines for claiming the extra tax savings. You may qualify for significant tax savings by using this 199-A deduction.
Businesses which purchase new equipment can claim bonus depreciation virtually writing off the entire purchase is a single year. The old rules required stretching out the deduction over several years. This bonus depreciation is available for used equipment as well. This is a big deal, under the old law there was no bonus depreciation on used equipment.
Entertainment expenses are no longer deductible. Many of my clients are upset about this. Under the new rules business people can no longer write-off the cost of taking a client to sporting event or other activity. The IRS made clarification that meals at entertainment events can be deducted at 50% as long as the meals are separately purchased. Sometimes the beer costs more than the ballgame! So, at least you can claim something.
What about state taxes?
Your California tax return is still living in the 1980’s. The state has made no effort to adopt the new rules. This is important, as some popular deductions that have been eliminated under federal rules can still save you money on your state taxes. A good example of this is Unreimbursed Employee Expenses. This deduction is alive and well on your state tax return.
Tax law is technical and confusing. You need a tax pro who can navigate the jargon and get you the best result. No one wants to push their deductions to the point where they end up in a tax audit. Our job is to get you the best legal deductions so you wind up paying less tax. Make your appointment sooner rather than later!