CPA Dan Herron didn’t want to be the bearer of bad news, yet there he was explaining to a couple why they owed the federal government approximately $10,000 in taxes on their 2018 return.
“They were used to paying around $1,100,” the San Luis Obispo, California-based accountant said.
They could attribute it to the Tax Cuts and Jobs Act, the first major overhaul of the tax code in more than 30 years.
President Donald Trump, who signed the bill into law at the end of 2017, championed the measure and reportedly wanted to dub it the “Cut Cut Cut Act.”
Indeed, the new law cut taxes across the board. It trimmed individual income tax rates, bringing the top rate down to 37% from 39.6%. Corporations also got relief, as their income tax rates fell to 21% from 35%.
The federal law also raised the standard deduction for single filers to $12,000 in 2018 from $6,350 for in 2017 (it went to $24,000 from $12,700 for married filing jointly) and limited certain itemized deductions for taxpayers.
It also did away with personal exemptions: a $4,050 deduction you once could claim for yourself and each dependent in your household.
Further, the new law nearly doubled the estate and gift tax exemption — the amount you can transfer in lifetime gifts or bequests at death without being subject to a 40% tax — to more than $11 million per person.
The kicker is that many of these provisions are temporary, so they will expire at the end of 2025.
The Tax Cuts and Jobs Act made what was an abstract concept — the Internal Revenue Code — into a hotly-debated topic that left many Americans wondering whether they really got the tax cut they were promised.
“We spent a lot of time explaining to people how their taxes were reduced in the prior year, but they still owed more on April 15,” said Edward J. Reitmeyer, CPA and regional partner-in-charge at Marcum LLP.
“When you couple that confusion with the political environment where everyone was on edge, it added fuel to the fire,” he said…Read more>>