New Tax Reform

The Tax Policy Center has claimed that the Tax Cuts and Jobs Act promises to decrease taxation for all income groups “on average”. The same statement is given by the Tax Foundation. The important word to consider here is “average”. Some tax filers will get increased benefit from TCJA while others might not be able to benefit at all.

The itemized deductions and exemptions reduce your taxable income. The tax credits are deducted from the taxes owed. For example, if you have an AGI of $100,000 then you owe a tax of $18,289.50. However, if you had an itemized deduction of $10,000 then your AGI would have been $90,000. And you would have to pay a tax of only $15,889.50. So you see how important itemized deductions are when you file your tax.

With the implementation of TCJA, up to 2% of AGI miscellaneous deductions have been eliminated. While TCJA implements a lower taxation rate for all tax brackets, the decrease in AGI deductions can still make you pay more tax. This is not good news, especially those with a high annual income.

The taxation prior to the TCJA allowed for AGI deduction of the costs of relocating for a new job. TCJA has eliminated this deduction and the distance you are moving doesn’t matter. Because moving expenses won’t be deducted anymore.

Before 2018, if someone paid alimony then the person received a deduction in AGI equivalent to the alimony. According to TCJA, any person paying alimony won’t receive a deduction.

The implementation of TCJA had limited the Schedule A deduction for state and local taxes (SALT) to only $10,000. SALT includes income taxes, personal property, and real estate taxes. Previously foreign property taxes were also deductible under SALT. However, TCJA has eliminated this deduction. So if you own an overseas property then you will have to pay an additional real estate tax on top of foreign taxes.

Investment management expenses were also deductible previously. These include the fees for investment advice, legal counsel, safe deposit box rental and trustee management. These expenses are no longer deductible from the AGI due to the TCJA.

Tax preparation fees could also be deducted before the TCJA. These included the fees of tax consultants, cost of tax software or buying tax publications. These expenses can no longer be deducted from AGI under TCJA.

So if you are a high earning individual than TCJA can make you lose tens of thousands of dollars in itemized deductions. This only gets worse if you have invested in real estate or if you have overseas properties.

Please reach out to us at https://cartiercpas.com/ for more information about the New Tax Reform so we can help you prepare or email us at info@cartiercpas.com.