Sifting through the myths on tax reform is like playing a game of truth or dare, except choosing incorrectly can cost you a lot of money and invite an IRS audit. Let's debunk the top myths to gain a better understanding of how the new laws impact what you pay in April.
Tax Reform Will Make It Easier to File Returns
Simplification was the main goal of the tax reforms, and the new rules to simplify filings for many taxpayers. In fact, one in five filers will switch to the standard deduction versus itemizing expenses. They won't need charitable-donation receipts and other proof of deductions or expenses. However, for most people, tax-return isn't simpler, especially if you itemize.
State Taxes Won't Be Affected
Actually, most state taxes are based on federal income taxes. Many people think the federal tax reforms won't impact their state's income tax, but that's incorrect. The majority of states use federal tax code characteristics as the basis for state tax computation. For instance, Oklahoma's tax brackets are based on the federal income brackets.
State exemption credits will be impacted if they're tied to the federal personal exemptions since federal personal exemption has been eliminated.
There's a Bonus Depreciation for Medical Marijuana Dispensaries
The tax reform grant a 100 percent immediate deduction for specific capital expenditures, known as a "bonus depreciation." It's a huge benefit for non-plant-touching cannabis dispensaries and businesses with high fixed asset expenses.
Plant-touching enterprises are eligible for this depreciation recovery as it pertains to "cost of goods sold" depreciation, due to 280E. The inventory tax regulations also typically require the less advantageous rules of Generally Accepted Accounting Principles for depreciation computations. GAAP is much less likely to permit bonus depreciation.
Reform Means You Can't Deduct Mortgage Interest
Most homeowners can still deduct mortgage interest. The reform does change the cap on mortgage interest to $750,000 on your primary home and an additional residential dwelling. That covers loans on most U.S. homes, since the average sales price is $246,000, per the National Association of Realtors.
Thanks to the Tax Cuts and Jobs Act, most taxpayers will experience a jump in taxable income for 2018. This is due to changes to deductions and the elimination of many tax breaks. At the same time, tax rates have mainly decreased. The expectation is that most taxpayers will pay less under the changes. Among those who can expect higher taxes are high-income residents in high-tax states or those with multiple homes.
A well-informed tax law professional can help you achieve lasting improvements in your financial health. Don't let fear of the unknown stop you from taking ownership of your taxes. If you are being levied, have a lien, being audited, or have unfiled tax years there are many options that we can provide to give you a good night's sleep again. Be proactive and call a tax attorney that deals with the IRS every day! Having the feeling of being underrepresented is a struggle of itself, call Travis W. Watkins Tax Resolution and Accounting Firm for your free consultation at 800-721-7054.