The new year brings a new tax code. Seattle taxman Howard Choder helps breaks down some of what people need to know, starting with the new standard deduction, which is nearly doubling for individuals and couples:
1. The standard deduction nearly doubles
In tax year 2018, the standard deduction for individuals increases to $12,000 from $6,350. For couples, it increases to $24,000 from $12,700 in 2017.
“In this new tax bill, the standard deduction is higher, and therefore more people may be eligible to reduce their taxable income to get to a lower tax rate,” said Choder. “That means that they could essentially be paying less tax because they get a higher standard deduction than they've ever had before.”
The new law eliminates personal exemptions.
2. Child tax credit increases
“The child tax credit used to get phased out a lot earlier,” said Choder. “They raised the threshold amount and they increased the child tax credit to $2,000 per child.
3. Don't necessarily rush to become an LLC
“The idea was that that would be a tax credit or tax deduction that would be given to 90 percent of all the businesses,” said Choder. “After the tax change was done, we find out that it is limited and not as much of a benefit to service providers.”
Choder said he's referring to consultant and independent contractor careers like doctors, lawyers, accountants, athletes, and service provider consultants, among others.
4. It's not as simple as advertised.
“I haven't seen a postcard,” said Choder, referring to Paul Ryan's prop for the new plan's simplicity.
“All I've seen is a thicker set of tax codes now. Nothing's simpler. Nothing's easier, and as a matter of fact, it's just more confusing. It promises more employment for me and my staff.”