Its officially been two months since the passing of the biggest tax reform since 1986 and understandably there have been comments from all perspectives on what it will mean to everyone. Although many of the items in the actual bill still need much clarification from the Internal Revenue Service on how they will interpret them, most people have a good overall idea of how this reform will most likely affect them. Or do they?
As with any tax laws, there are usually winners and losers (unfortunately at some point tax needs to be collected to continue to operate the government). So how will you fare under the new legislation? We all know that for many, itemizing their deductions may no longer be necessary with the increased standard deduction. That’s a time saver for some for sure. So for those taxpayers who are married with no children and had itemized deductions of say $12,000 you will see your new taxable income drop a few thousand. Sounds great but most taxpayers (especially in Wisconsin) their itemized deductions far exceed those numbers.
Let’s say your that same couple above but in addition you had $12,000 per year in investment management fees. In that case, under the new law, those investment fees are not deductible. Without some changes and tax planning, this couple will see their taxable income rise about $8,000 in 2018 without making any additional money, and that means they will pay more taxes.
What about those taxpayer’s with children. So under the new reform there is no direct deduction for your dependent. So for 2018 a family with four children would have claimed a deduction of over $24,000 whereas for 2018 that goes to zero. However, the savings for these taxpayers comes from the child credit (which now is available to more taxpayers). That new $2,000 credit will help make the overall tax bill actually go down for these families under the new law. However, as with all tax laws, we caution our clients that this credit is only TEMPORARY and set to expire in 2 years which will create a “hidden” tax increase for these taxpayers.
So that lightly covers the Federal changes but what about the states? Well some states are making changes to follow some or all of the Federal changes and some states are not. It means more nuances to keep up on as we move forward. Wisconsin for instance has given some taxpayers a bit more of a break for 2018. For the current year, Wisconsin is offering a child credit for those with children under 18. However, this credit requires some work by the taxpayer so go to https://childtaxrebate.wi.gov/ and REGISTER for this rebate by JUNE 30, 2018. This rebate will be completely separate from your tax filings and has several pieces of information you need to provide, but without income threshold limits nor residency requirements (that means even part-year or non-residents can be eligible) its definitely worth your time. Wisconsin has also stepped up with something that has been prevalent in several other states for years, a Sales Tax Holiday. From August 1st though august 8th most clothing, all school supplies and many computers will be exempt from sales tax! Or how about states like New Jersey who have allowed municipalities to establish charitable funds that can accept property tax payments and thereby allow taxpayers to make “charitable contributions” (which are still deductible) instead of property tax payments (California, Illinois, New York and a few others are looking at similar bills). New York has also proposed a bill to reduces the state income tax and increase a payroll based tax (which theoretically would be deductible)
Whenever there is a new law enacted, it is our goal to find ways to best help our clients legally find the most tax benefits available. So how do you become one of the winners from the new laws? Just ask our team at RPB and let us see what we can do for you. We are here to help.
Brad Voght is the tax partner at Reilly, Penner & Benton, LLP, a public accounting firm and trusted adviser specializing in business and personal tax matters as well as in not-for-profit work, school organizations as well as government and municipal agency work. The firm also provides ERISA audit services to publicly held entities throughout the country. A PCAOB registered firm, Reilly, Penner & Benton CPAs also known as RPB CPAs, has served closely held businesses and has provided tax preparation and advice, financial statement audits, reviews and compilations, employee benefit plan audits, bookkeeping services, business valuations, fraud prevention and consulting services since 1907.