On December 20th new changes in tax laws were finalized and passed both houses in Congress. Be careful about relying on what you have read that is prior to this date, as there were a number of changes right up until the final version on December 20th.
The new tax laws will become effective in the 2018 tax year except for some provisions that disallow bunching up some deductions in 2017 in anticipation of them being disallowed in 2018.
Two of the changes that will affect every personal income tax return are:
- There will no longer be a deduction for personal exemptions. The personal exemption was $4,050 per taxpayer and per dependent in 2017.
- The standard deduction that can be taken in lieu of itemizing deductions will be approximately doubled. As an example, if you file married filing joint the standard deduction in 2017 was $12,600. This amount will be $24,000 in 2018.
For taxpayers who have an interest in what is known as a pass through entity (S corporations, LLC’s and partnerships, there will generally be a new 20% deduction allowed for what is referred to as “qualified business income.” The calculation of the allowable deduction is subject to a number of qualifications and limitations and is actually one of the more complex areas of the new tax laws.
The above is intended only to give the reader a sample of some of what is in the new tax laws, and as always, anything that is presented here should be discussed with a tax professional to determine how it specifically applies to your situation. I have deliberately tailored my discussion to make it more understandable. I will also be updating my discussion of the new changes as well.