Make no mistake; tax reform is not near…it’s here.
The sweeping tax overhaul namely the “jobs Act” is positioned to affect us significantly through 2025 for individuals and permanently for businesses. When I say us I mean “us”…the professionals and working class of NY.
Although this is being called a “tax cut” it seems to have many indications of a cut for the affluent and for businesses but certainly not for the working professionals of NY.
Yes…yet again they have crunched the numbers and ensured that the working class professionals get squeezed and in the end pay the same or even more taxes but certainly not less!
Let’s look at 4 significant tax changes and their affect on the working class professionals and businesses.
1. Virtually all of the changes will not affect this year’s tax filing. They are for the 2018 tax year, which are filed in 2019.
2. The SALT deduction (state and local taxes) including sales tax and real estate taxes is capped at 10K.
3. The mortgage interest deduction is capped at the interest on 750K down from 1 million and that is the case for single people and married folks. This is about as significant to an NYC professional as the ever popular “year end review.”
Forget about that 10 to 20% bump you were banking on because this will probably cost you upwards of 10K. Why you ask? Because new Yorkers pay one of the highest state and city tax rates in the country, not being able to deduct those SALT taxes will have us literally gasping for air next tax season.
The supporters of this will argue that the standard deduction was raised, however along with that the exemptions were eliminated therefore, I project that taxable income will now be higher.
In addition, most of the benefits that we thought we were getting by purchasing that NYC Condo are gone paying homage to the millenniums who have opted from the beginning to buy no car, buy no real estate, stay flexible and be a jet setter.
4. No more miscellaneous deductions including moving expenses, tax prep fees and legal fees. In a word “creative” deductions that reduced your taxable income when you have no home or mortgage are gone. While in the past, this was an area that the IRS would enjoy auditing and recouping tax dollars from, this is now SUSPENDED starting in 2018.
No more writing off those cell phone calls, that device that you purchased solely for business; your dry cleaning for those out of town meetings or even that travel and lodging for that very same meeting. The premise here is that they increased the standard deduction to compensate but they also eliminated the exemptions therefore taking it right back.
References – Congress (2017) HR.1, Wolters Kluwers Tax Briefing, Client Whys on Tax Reform, Disclaimer.
Written by Will DeJesus CPA, CIA, CISA CEO and CO-founder TaxTerminal.com Inc.1