So, you’ve heard about new tax laws in America? You may have gotten your info in a text alert or while eavesdropping on two accountants conversing on the treadmills next to you at the gym. What you might not have gotten, however, is a simple breakdown of what it all means – or more importantly, what the heck it means to you?
To provide some answers, Real Smarts recently sat down with Angela Morrison, CPA, MSA, MST, and Partner at Huntington Tax Partners in Bedford, MA for the first part of a new tax series.
Real Smarts: “Angela, there seems to be a lot of confusion about the new tax law. What do taxpayers really need to know, because let’s face it, for most of us, tax law is very confusing and a bit…”
Angela: “…boring…well obviously not to me, but yeah, I get that. One of the biggest misconceptions is that the new tax law affects 2017 taxes, the ones people are filing now. It doesn’t....unless you own a business.”
Real Smarts: “So individual taxpayers are not impacted by the new tax laws now?”
Angela: “Actually, you are. New tax withholding tables were just released, so people may have seen an increase in their most recent paychecks, since the tax rates are lower in 2018 versus 2017.”
Real Smarts: “Well, that’s good news. What some people may consider bad news is that some deductions are going away. Can you talk about those?”
Angela: “Well, at the individual level, state income taxes, real estate taxes, and excise taxes are being capped at a combined total of $10,000. This is going to have a big impact on people living in high-income tax states and high real estate tax cities/towns.
The Act also limits the mortgage interest deduction to $750,000 of acquisition debt instead of the previous $1 million limit. Loans prior to December 15, 2017 are grandfathered at the $1 million threshold. In addition, interest expense on home equity lines of credit is no longer deductible, unless the proceeds were used to improve the home and you are under the $750k threshold on acquisition debt. I’ll talk more about the implications on homeowners in future editions of Real Smarts.
The 2% miscellaneous itemized deduction category was also repealed. This is where people deduct their employee business expenses, investment expenses, tax preparation fees, and certain attorney fees. With all of these limitations and certain deductions being repealed, most people will receive the standard deduction going forward. Taxpayers will want to utilize more pretax deductions offered by their employers, if they aren’t already doing so. Personal exemptions also went away, but it is kind of offset by the increase in the standard deduction and increased child tax credit.”
Real Smarts: “Angela, what advice do you have for people looking to learn more about how this affects them?”
Angela: “Definitely consult with a tax expert. There are so many things you could do to save hundreds or even thousands on taxes that most people aren’t aware of. Yes, it might cost you a little money to do that, but the savings far outweigh the cost.
If you own a business or a rental property, you are making the biggest mistake if you prepare your tax return yourself. The savings from simple tax planning is well worth the cost of hiring a tax professional. We have saved clients thousands by preparing multi-year, multi-scenario tax projections - it’s where we can add the most value.”
Real Smarts: Thank you Angela. This was very helpful and we didn’t drift off once. In fact, we liked it so much, we're going to invite you back to talk more specifically about how the tax laws affect homeowners, and business owners.”
Angela: “I’ll be here.”
Do you have a tax question? Real Smarts invites you to send in your questions via Avidia Bank's Social Media Pages. As part of our tax series, we’ll pick a question and have Angela provide an answer.