The Tax Cuts and Jobs Act, simplified

By Michael Marmel

Since the Tax Cuts and Jobs act was passed last year, there have been dozens of books and hundreds of seminars about it, to help people wrap their minds around the new laws. Almost nothing remains the same. However, that does not mean that it is complicated – it is just new, and in due time, it will be the new normal. Most of the changes are beneficial, but some are not, and we will endeavor to make all of them seem clear and simple.

The new 1040 tax form – the most visible change is that the new tax form has been changed from a 2-page document into a series of postcards. This may seem confusing, so be sure to ask your accountant to provide you with a “1040 reconciliation form.” This form essentially replicates the old look of the 1040, so one can avoid adjusting to the new, more confusing look.

Itemized deductions –all those years of savings charity and medical receipts for tax time will be over for most Americans. The standard deduction is 12,000 for Singles, and 24,000 for married people. That means that unless the combination of medical expenses, charity, real estate tax, mortgage interest and state tax paid (up to 10,000) is greater than those amounts, the standard deduction will apply. Real estate tax, though, is still deductible for state tax purposes. Additionally, many itemized deductions have been disallowed, such as moving expenses, tax preparation, work-related travel, home office expense, and the cost of a bank lockbox. Interest paid on home equity loans is only deductible if it was used for home improvement.

Rental Properties – a tax loophole available only for the 2018 tax year is the section 199A Safe Harbor deduction. This deduction applies to anyone who spend more than 250 hours working in their rental property. From 2019 and onwards, the 250 hours must be documented, but for 2018, no documentation is necessary to claim the deduction.

Documentation – in response to an increase in tax returns filed fraudulently, the IRS requires every taxpayer to provide a photo ID to their accountant, and to submit a proof of any children that they claim as dependents. Proof of dependents includes medical records or school records

Health insurance – 2018 is the last year that health insurance is required, as Obamacare was ruled out as unconstitutional by the Supreme Court.

Divorce – 2018 is also the last year that alimony is tax deductible. Any alimony paid on a divorce decree issued after January 1, 2019 is no longer deductible.

Business meals & entertainment – while business meals are still mostly deductible, entertainment, such as season tickets for treating high-value clients, are not.

Children – the new tax credit provides 2,000 for every qualifying child.

Corporations – the new corporate tax rate has gone down from 35% to 21%, with small businesses and individual taxpayers picking up the tab. It is highly likely that this will be repealed when if there will be a Democrat in the White House in conjunction with a Democratic Congress.

As a final note, there have been many people who have been scammed recently by people masquerading as the IRS and threatening to arrest them if they do not pay immediately over the phone. It is very important to understand that the IRS does not call people over the phone – they will send a combination of the following letters over a period of several months: CP2000, CP2501, CP3219, 2205A. Finally, if all of those are ignored, a 1058 Final Notice will be sent. However, even then, the person will have a fair trial before they can be indicted for tax fraud. This is a democratic country, and there has never been an instance where someone had to pay over the phone to avoid arrest. The best thing to do in such threatening phone calls is to hang up.

Michael Marmel is a Chicago accountant. He can be reached at (773) 456-9729 or at Michael@marmelaccounting.com.

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