Tax Expert: Everyone Will Be Impacted By GOP's New Tax Law
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PITTSBURGH (KDKA) -- With over 500 pages in this tax bill, it may take a while to sort through the details, but this point is clear.
"There's no doubt. There's no doubt. Every taxpayer will be affected in some way, shape or form," Dan Phillips told KDKA money editor Jon Delano on Wednesday.
Phillips heads the technical tax committee at the Pittsburgh tax accounting firm of Schneider Downs, and he says the first impact will be felt in paychecks after the new lower tax rates take effect in January.
"The different brackets are going to impact what your net pay looks like."
Reduced federal tax withholding should give you a few extra bucks in your paycheck each week.
While the lowest tax bracket rate remains the same, middle income tax rates will drop from 25 to 22 percent and 28 to 24 percent boosting your take-home pay with the wealthiest getting the largest dollar return.
But the biggest question for taxpayers going forward is whether to continue to itemize their tax returns and claim deductions as many have done, or to switch and take the substantially higher standard deduction because so many of the traditional deductions have been eliminated or capped.
"Certainly, there will be a significant amount of people who will now just take the standard deduction who would have itemized in the past," says Phillips.
Gone will be the personal exemption for each person in your household; home mortgage interest will be capped at $750,000; deduction for property taxes or state and local taxes capped at $10,000; interest on home equity loans no longer deductible; and many itemized deductions like moving expenses and tax preparation fees disappear.
With the standard deduction nearly doubling to $12,000 for singles and $24,000 for married couples, experts predict that beginning in 2019, 94 percent of us will now file the simpler return with no deductions.
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Beginning in 2019, the new tax law will bring substantial changes to filing your federal income tax return, but because the Republican plan eliminates and caps many traditional deductions in 2018, tax experts have this advice for the 45 million taxpayers who have itemized their tax returns in the past but may not do so in the years to come.
Phillips: "You may want to take some deductions into '17 that you maybe you would do in '18'"
Delano: "Are you allowed to do that?"
Phillips: "It depends on the type of deductions."
Phillips says the new tax law encourages taxpayers to switch from itemizing their tax returns and start taking the new nearly double standard deduction.
At least 20 million taxpayers are expected to do just that.
But if you take the standard deduction, you cannot itemize and deduct things that are still allowed like donations to charities, so Phillips says make your 2018 charitable donations before the end of this year.
"Perhaps you're not going to itemize in '18, you would want to take those in '17. Go ahead and make the contributions by year end and get them paid in so you can have the deduction in '17," he said.
What about pre-paying your 2018 state and local income taxes and local property taxes?
The new law caps the total amount deductible for those at $10,000 beginning in 2018.
"State and local income taxes wouldn't be something you could pre-pay ahead of time, but if you try to take that deduction in '17, there's a provision in the new code that's going to prevent that."
So that's not an option.
This 503-page tax bill is complicated, and you may need some advice to sort it out.
But here's a tip on that.
Get advice in 2017 because beginning in 2018 tax preparation assistance is no longer deductible.
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