As we’ve mentioned before, the Tax Cuts & Jobs Act was one of the most sweeping tax law changes in many years. While there are still questions that need to be answered on both a Federal and State level, this is some of what we know right now.
Business Updates
- If your business has over $25 million in average gross receipts, you can’t deduct more than 30% of adjusted gross income in business interest.[1]
- Only farms and certain insurance companies can now carryback net operating losses to prior years.
- You can still deduct 50% of business meal costs, but you can no longer deduct anything for entertainment expenses.
- Many states have started collecting sales tax on online purchases from out of state customers. As of December 1, 2018, Connecticut businesses must collect sales tax when gross sales of at least $250,000 and 200 retail sale transactions occurred during the prior 12-month period ending on September 30.[2]
Individual Updates
- Standard deductions are higher in 2019, which means that many more people will not need to itemize their deductions. In some cases, it may make sense to look at both the standard and itemized deduction to see which one is best for your particular situation. New deductions are:
- Single: $12,000
- Head of Household: $18,000
- Married Filing Separately: $12,000
- Married Filing Jointly: $24,000
- You can deduct qualified medical expenses that exceed 7.5% of your adjusted gross income in 2018, but in 2019, that amount must exceed 10%. (So, if you have elective procedures that need to happen, you might want to do them in 2018 to increase your chances of deducting the cost.)
- The rules on charitable deductions didn’t change, but you must itemize if you want to deduct them from your taxes. Since more people will take the standard deduction now that it is higher, many predict that charitable giving will decrease overall.
- To claim the $2000 child tax credit, the child must be under 17 at the end of the year and have a valid social security number.
- Moving expenses are no longer deductible for anyone except members of the Armed Forces.
This is just part of the sweeping reform passed earlier this year, and clarifications are coming out quite frequently as we get closer to tax season. We are doing everything we can to stay up-to-date on the changes and are happy to answer any questions you have. Reach out to us so we can analyze your individual or business tax situation and offer the best advice.
[1]https://www.accountingtoday.com/list/a-tax-cuts-and-jobs-act-checklist-for-2019
[2]https://www.sikich.com/insight/update-on-state-responses-to-wayfair/
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