While Republicans are touting a victory in the passage and signing of the Tax Cuts and Jobs Act, it will take some time before most changes go into effect. And with all the sweeping changes in the law, tweaks and fixes are likely in the coming months, experts say.
“It’s important to remember that it could be years before the IRS does its interpretation of the tax changes and even longer, if ever, before those interpretations are tested by courts,” says Steven Weil, Ph.D., president and tax manager of RMS Accounting, an accounting and bookkeeping firm. “There are sure to be errors, and corrections that Congress will have to make. How long these will take and how many there will be is anyone’s guess.”
In the meantime you may see a few changes sooner, depending on some variables.
It Depends on How You File
One of the main changes is in how tax brackets are figured, says Josh Zimmelman, president of Westwood Tax & Consulting. “The seven tax brackets have been changed from 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent in 2017 to 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent in 2018,” Zimmelman says.
Taxpayers may find themselves in a new bracket paying new rates when they prepare their 2018 taxes next year. In addition, those who itemize will be able to deduct state individual income tax, sales taxes or property taxes up to $10,000, Zimmelman says, depending on which is more beneficial for them.
While the standard deduction has increased, personal exemptions have been suspended, Weil adds, and that can complicate filings. “If all you have is a W-2, with a little mortgage interest and real estate tax from one home, your return should be simpler and your tax lower,” he says. “However, if you have investment income, business income or other complications, things are not going to be simple.”
It Depends on Perks You Get at Work
While changes to personal and business taxes may not directly affect you until you file your 2018 taxes next year, you may see some changes at work. Companies that provide lavish perks to employees may revisit those policies as a result of changes to the tax code.
The 50 percent deduction that was allowed for business entertainment has been eliminated, Weil says. In addition, employee meals at an employer facility used to be 100 percent deductible, but are now only 50 percent deductible, he says. In response, employers may dial back some perks because the tax benefit isn’t as large as it used to be.
It Depends on Whether You Own Real Estate
Property-based taxes see some big changes in this tax plan. State, city and real estate tax deductions used to be deductible in their entirety, but will now be limited to a total of $10,000, Zimmelman says. And while mortgage interest was previously deductible on loans up to $1 million, that figure has dropped to $750,000, he says. “This only applies to new homes purchased; current homeowners will see no change,” Zimmelman says. In addition, the home equity loan interest deduction has been eliminated.
Weil stresses that these changes may still need to be refined in the coming months. “Basically what we will have is a new ballgame, one that doesn’t have hard-and-fast rules for anyone,” he says. And the changes do not replace the old code but simply amend it, inserting changes, new sections and striking words, sections and paragraphs, he says.