Income Tax and Sales Tax Law Changes
The Tax Cuts and Jobs Act that congress past a year ago, was the biggest change to our tax laws in 31 years. The new law has major implications for both individuals and businesses. We will discuss some of these implications in this newsletter as well as another reduction to the Florida sales tax rate for commercial rentals and leases.
Tax Law Changes for Individuals
The new Tax Cuts and Jobs Act means that for 2018, you can no longer claim a personal exemption deduction for yourself, your spouse, or your dependents on your federal tax return. However, changes to the standard deduction amount and the child tax credit could offset at least part of this change for most families.
The Tax Cuts and Jobs Act nearly doubled the standard deduction and changed several itemized deductions. Some individuals who formerly itemized may now find it more beneficial to take the standard deduction. Major changes in itemized deductions include limits on state and local tax deductions, limiting the deduction for home mortgage interest in certain cases, and excluding miscellaneous itemized deductions such as unreimbursed job-related expenses.
The maximum child tax credit increased to $2,000 per qualifying child. Up to $1,400 of the credit can be refundable for each qualifying child as the additional child tax credit. In addition, the income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly.
Remember that these tax changes only apply to federal income tax returns. if you file a state income tax return, your state may have very different deduction laws than the Federal income tax .
For more information about this tax reform, download IRS publication 5307, Tax Reform: Basics for Individuals and Families or give us a call with questions!
Tax Law Changes for Businesses
The 2017 Tax Cuts and Jobs Act eliminated the deduction for any expenses related to activities generally considered entertainment, amusement, or recreation. Taxpayers may continue to deduct 50 percent of the cost of business meals if the taxpayer (or an employee of the taxpayer) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant or similar business contact. The meal expense must be an ordinary and necessary expense in carrying on your trade or business.
A provision in the new tax law allows deduction of up to 20% of qualified business income for owners of some pass-through entities such as partnerships and S-Corporations. Limits apply based on income and type of business.
The Tax Cut and Jobs Act made several changes to depreciation. It temporarily allows 100% expensing of depreciable business property acquired and placed in service after September 27, 2017 and before January 1, 2023. It also increased the maximum deduction of Section 179 property to $1 million and increased the phase-out threshold to $2.5 million and modifies the definition of section 179 property to allow taxpayer to elect to include certain improvements made to nonresidential real property. For more information about depreciation, and how to apply it in your business, contact us today!
Florida State Sales Tax
The Florida State sales tax rate for commercial rentals and leases, or licenses to use real property is decreasing another 0.1% on January 1, 2019, from 5.8% to 5.7% plus the applicable county surtax. For Walton County property owners, this change means a new tax rate of 6.7%.
Sales tax is due at the rate in effect during the time the tenant occupies, or is entitled to occupy, the real property regardless of when the rent is paid. So, for instance, sales tax on December 2018 rent is the old rate even if your tenant does not pay until January 2019.
Information about the proper reporting of tax due on commercial rentals is available on the Florida Department of Revenue’s website, or call one of our friendly staff accountants.
Stamp Out Tax Season Stress!
Are you ready for tax time? There are a couple of steps you can take now to alleviate some of the stress of filing your return. Plan to get organized early. Begin by putting together a tax folder with W-2s from your employer, 1099s for other income you may have earned, bank and other financial statements and receipts for things like medical bills and charitable donations.
Once you’ve gathered all your important paperwork, this is a good time to meet with us to talk about changes in your financial situation or in tax laws that may have an effect on your return. Having this discussion early is key to avoiding surprises at tax time. During the meeting we can also get started on planning that can potentially minimize your tax bite and strengthen your financial situation. Call us today!