It’s no surprise that the new tax law can be easily misunderstood. Between strong opinions about the current presidential administration and the intricacies and difficulties of taxes in general, it’s not difficult to see why many believe that the new tax law and its effects are all negative. However there are several benefits – regardless of political affiliation – of which many citizens are unaware.
The new tax law was intended to serve several different purposes.
Itemized tax filing (Schedule A) preparation is more expensive and was intended for people who own or mortgage a property, have a good amount of disposable income to give to charity, or who have a ton of medical expenses (among other items). However, these itemized deductions were only available to those who qualified for these specific deductions. Schedule A deductions have never actually benefited working class, lower income individuals, or pretty much anyone whom rents since using a Schedule A required taxpayer deductions to exceed the standard credit.
In 2017, the standard tax deductions were the following:
Single or married filing separately: $6,350
Married filing jointly: $12,700
Head of household: $9,350
When compared to the previous year, it is easy to see that the 2018 standard tax deductions increased rather significantly:
Single or married filing separately: $12,000
Married filing jointly: $24,000
Head of household: $18,000
Despite property, state, and local taxes now being capped at $10,000, many Americans do not have more than that. For those who do (mostly in the suburbs and high tax states), the fact that standard deductions have already been doubled it is likely that they have recouped more money than they would have if they had used a Schedule A.
Though some previous deductions (such as charitable donations and meals & entertainment) are no longer allowed or greatly reduced, the additional $6,000 to $12,000 in the new standard deduction more than accounts for them.
Medical Deduction Amounts to Bigger Credits
The 2017 medical deduction was intended for expenses that exceeded 10 percent of household income. However, what many did not know is that people were only allowed to claim the difference between what they actually spent and 10 percent of their income. It is also important to note that for those who get their insurance through their company, it is likely before being taxed, which means that in order for you to exceed that 10 percent, those medical expenses would have to come from co-pays and out-of-pocket costs. However, with the new tax law, that percentage has been reduced to 7.5 percent, which allows individuals to receive a bigger credit back.
For example, assume one grosses an annual salary of $50,000 and spent $7,000 on out of pocket medical costs. In 2017 the taxpayer would be eligible for a $2,000.00 deduction while in 2018, this taxpayer would be eligible for a $3,250.00 deduction.
Prohibits Deductions for Costs of Sexual Harassment
With the great impact of the #MeToo movement and the outpouring of support for women – both anonymous and infamous — who have reported being the victims of sexual harassment in the workplace, it is great to see the direction that the new tax law takes concerning how it treats businesses that have been accused of sexual misconduct. The new tax law no longer allows for any business to deduct even one cent of costs or settlements that are related to sexual harassment. Our society is no longer putting up with this abhorrent behavior, reflected in the new tax law. This is clearly a win.
Helps the Impoverished
The Earned Income Tax Credit allows for people to receive back federal taxes that may not even have been paid in. In other words, if someone qualifies for the credit but does not make enough income to owe taxes, the individual actually receives a refund. They would receive back whatever they had already paid as well as the additional credit. Since the standard deduction is higher now, many low-income families owe less in taxes because they receive the same standard deduction as wealthier Americans, but also the additional credit.
Many Americans Benefit
To sum everything up, many Americans have actually benefitted from the new tax law. Since they would not have filed a Schedule A, they now actually receive a credit of $6,000 to $12,000 that they otherwise would not have collected. Since Schedule A exists for those with greater deductions that the standard deductions – who are likely well off – the increase in standard deductions has helped more average Americans while hitting the wealthier more since deductions are now capped.
This year was difficult for employers and employees alike. Understanding changes, especially significant ones like we saw this year are crucial to synergy amongst all taxpayers.
If you are an employee, we hope that this information was useful. If you are an employer, you may be seeing heightened levels of frustration from employees. It’s important to empower and educate your employees when changes come about that will directly affect them. This year payroll tax deductions were reduced in anticipation of the lower tax liabilities to be expected at the end of the year. If you did not educate your team in 2018, please be sure to provide further education for the 2019 tax season. While illegal for a business to assist with completion of the W-4, hiring an independent source to educate and assist is not, consider this an important employee benefit this year.
Calculating Destiny, LLC Can Help
At Calculating Destiny, LLC, we are a team of knowledgeable and experienced professionals that is dedicated to helping improve your business process. We work both on location and remotely, integrating into your existing team. Our ability to accurately and compliantly run your business allows you and your team to have a clear understanding of the challenges that may present themselves, how to over come them, and how to set and achieve tangible goals. Through internal audits, process manuals, operations, and training & education, our number one goal is to help your company grow – even if that means outgrowing our services. To learn more about how we can help to put your business back on track for financial success, schedule a free consultation by visiting us online or calling us at 215-674-3430 today!
http://calculatingdestiny.com/dev/wp-content/uploads/2018/06/logo.png00Blair Kaplanhttp://calculatingdestiny.com/dev/wp-content/uploads/2018/06/logo.pngBlair Kaplan2019-02-27 14:12:402019-02-27 14:12:40New Tax Law Benefits Many Americans