NJ DISCOVER FEATURE : A Look at 2018 Tax Bill by Andrew Kabatchnick, CPA
2018 Tax Bill
Please note that my article does not endorse or criticize any specific political party or plan. One of President Trump’s promises when he was running for President was to overhaul the current tax bill, and he was able to quickly pass something through Congress towards the end of the year. There were negotiations since he took office, however the tax bill negotiations came into the spotlight towards the end of 2017. When all the chips fell and the final bill was passed towards the end of 2017, there were a great deal of changes that will affect our high tax state of New Jersey. On the positive side, the standard deduction and child tax credit is nearly doubling and the income tax rates will be lowering. Also, some business owners will be paying a reduced 20% tax rate while many other business owners will be able to deduct 20% of their taxable business income. On the negative side, the state, local, and real estate tax deductions that many people in high tax New Jersey rely on will be capped at $10,000. Also, the $4,050 personal exemption will be taken away. Lastly, the mortgage deduction will be capped at $750,000 of principal, down from $1,000,000.
I will first discuss the positives of the new tax bill. The standard deduction (taken by people who do not have enough expenses to itemize) will nearly double from $6,350 to $12,000 for single filers and $12,700 to $24,000 for joint filers. This will assist taxpayers who have always taken the standard deduction as well as people who were barely over the limit to itemize (generally renters and people who live in lower tax states come to mind). Also, the tax rates will become more beneficial. The top tax rate will be reduced from 39.6% to 37% while all tax brackets become wider (the lower tax rates will allow more income to fall within each band, lowering your overall tax bill). Some businesses will now be taxed at a flat 20% tax rate while many other businesses will be allowed to deduct a flat 20% from their taxable income.
While there are some positives in the tax bill, there are negatives as well. First of all, the state, local, and real estate deduction for individuals will be capped at a total of $10,000. If you own a home in NJ, It is likely that your current income and real estate taxes total well above this threshold. The personal exemption of $4,050 will now be taken away. Lastly the mortgage deduction is being further limited. For new mortgages (this includes refinances) originated in 2018 or later, the cap for mortgage interest deduction will be $750,000 of principal instead of $1,000,000. Anyone with a lower principal balance will be able to deduct their full interest payments. If your balance is higher, you will only be able to deduct a portion.
All in all, there are many positives and negatives with the tax plan that was passed by Congress and signed by President Trump. We are expecting most people throughout the country to benefit from the plan, but there will be a mixed bag in New Jersey. If you have any questions or comments about the bill, you can reach him at (973) 879-9111 or firstname.lastname@example.org.
NOTE: Andrew appeared on a recent edition of Good Day New York (Channel 5) with Rosanna Scotto and Lori Stokes VIDEO: https://youtu.be/exbU_dU-JYM