5 Actions to Take Now Because of the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) made numerous changes in tax law. Many of the changes will show up on your 2018 return, which won’t be filed until 2019. But don’t wait to take action now that can favorably impact what you’ll pay or what you’ll owe for the year.

1. Review your withholding

The TCJA made numerous changes, including these favorable ones:

• Increased standard deduction
• Expanded child tax credit
• Change in the tax rates for most brackets

However, the new law also eliminated several deductions, including:

• Miscellaneous itemized deduction for employee business expenses and investment costs
• Moving expenses
• Casualty and theft losses (other than those occurring in federally-declared disaster areas)

Taken all together, you may have to increase withholding or be able to reduce it. You can use an IRS calculator (https://apps.irs.gov/app/withholdingcalculator/) to figure your proper withholding.

 2. Cover the taxes on your sharing economy earnings

The IRS suggests that anyone working in the sharing economy, such as Uber drivers, to do a “Paycheck Checkup” now to avoid a surprise tax bill later on. This means being sure that federal income taxes on self-employment income, as well as self-employment tax, is covered by withholding from a job, extra withholding on a spouse’s paycheck, or estimated tax payments.

3. Check state income tax rules

Despite changes made by the TCJA, your state’s income tax rules may not have changed. In other words, you may…or may not…be able to enjoy favorable federal tax changes on your state income tax return. This can affect your state tax withholding so check on this.

4. Talk to your employer about business expenses

As an employee, you cannot deduct business expenses as miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income floor. This deduction has been suspended for 2018 through 2025. However, if your employer pays these business expenses, the employer likely can deduct them.

If your company has an accountable plan, reimbursements to you for business expenses can be tax free (they aren’t even reported on your W-2). Make sure you understand what you have to do to comply with accountable plan rules.

5. Learn about the QBI deduction

If you have a business—full or part-time—you may be able to claim a new deduction, called the qualified business income (QBI) deduction. You don’t have to do anything special to get it, but it’s helpful to understand how it works.

As long as your taxable income does not exceed $315,000 on a joint return, or $157,500 on any other return, you essentially deduct 20% of QBI (business income without regard to capital gains and losses, dividends, and certain interest). If your taxable income is more, then certain limitations come into play. Ask your tax advisor to go over this new write-off with you.

Conclusion

The sooner you familiarize yourself with changes from the TCJA, including the elimination of Forms 1040A and 1040EZ (only Form 1040 is used for 2018 returns filed in 2019), the better positioned you will be to reduce your tax bill for the year. Developments will continue to be posted at jklasser.com.