Congress passed a sweeping tax reform package last year – but what does that mean for you?
If you have been wondering that, you are not alone. This year has been a whirlwind of activity in Washington D.C. The recent tax reform plan was passed extremely quickly before being signed into law.
These reforms could have far-reaching consequences for our economy, our communities, and your bottom line. At Ventures, we want to make sure that we are doing everything that we can to help our entrepreneurs understand and take advantage of these changes. The new tax structure won’t apply to the 2017 taxes that you are filing right now. However, they will be in effect for your 2018 taxes (which you will file in early 2019).
If you make a personal income, you will be subject to a new tax bracket in 2018. This table from TurboTax shows the new rates that will apply through 2025. The New York Times also has a tool that allows you to calculate an approximate impact on your personal taxes. Aside from the new rates, there are a number of other aspects of the bill that could affect your financial situation.
Five Tax Tips
1. The new law allows a new treatment of so-called “pass-through” businesses. This refers to sole proprietorships, partnerships, and 95 percent of U.S. businesses overall. The change allows a 20 percent tax deduction for all pass-through businesses except for service-based businesses with income above $157,500 (or $315,000 if married). Essentially, if your annual business income is $50,000 per year in 2018, the IRS will only tax you on $40,000 of that.
2. The standard deduction is approximately doubled. If you do not itemize your returns, you will be able to reduce your taxable income by $12,000 for a single individual or $24,000 for a married couple filing together.
3. Personal and dependent exemptions have been eliminated. Beginning next year, you will not be able to claim a $4,050 exemption for yourself, your spouse, and your kids as you currently can.
4. The Child Tax Credit has doubled to $2,000 for children under 17. This a refundable credit. If you have a tax bill of $0, you can have money refunded.
5. You can still deduct student loan interest and medical expenses. Medical expenses that exceed 7.5% of your Adjusted Gross Income (AGI) can be deducted. You can claim a deduction of up to $2,500 on the interest paid on student loans.
These are some of the biggest changes and points of concern. However, there are others that could affect you as well – like the repeal of penalties for not having health insurance under the Affordable Care Act.
Upcoming Tax Workshops
If you have questions about filing federal business taxes, anyone can attend our Schedule C Tax Workshops on February 26 and March 22 in English, and on March 20 in Spanish. The “Schedule C” is the federal tax form for Sole Proprietor and Sole Member LLC businesses that is due with your annual tax return (1040) on April 17, 2018. To register, contact our front desk at firstname.lastname@example.org or 206-352-1945.
For personal income tax filing support, United Way Tax Sites offer free help in multiple languages from IRS-certified volunteers throughout King County. These workshops are completely free and do not require an appointment. The only requirement is that your household income not exceed $66,000/year.
Raise Your Voice
These changes will have systemic consequences for low-income communities and micro-business owners. Although we cannot predict these consequences exactly, we must do everything that we can to strengthen the voice of Ventures’ entrepreneurs in the process.
Raising our voices is especially important as self-employment and micro-business become bigger parts of our economy. At Ventures, our new advocacy program is working to drive that change: you can read more and sign up for updates here.
And, as always, please reach out to your business coach or other Ventures staff with any questions!