What the new federal tax law means for 2018 returns of Richmond-area residents

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The 1,101-page Tax Cuts and Jobs Act was signed into law Dec. 22 by President Donald Trump and has been touted by politicians as the most significant tax code change in decades. The bill passed in the House of Representatives by a vote of 224–201 and in the Senate by a vote of 51–49 with no Democratic support in either chamber.

Bill sponsor and Houston-area U.S. Rep. Kevin Brady, R-The Woodlands, serves as chairman of the House Committee on Ways and Means. Brady said in a statement the measure would be a boost to the economy.

“This legislation will deliver real relief to hardworking families in my district and across the country who will be able to keep more of the money they earn,” he said.

How much relief the bill brings depends on various factors, including what people earn, how many children they have, and whether they use certain deductions, according to the law.

Standard deductions increase

About 70 percent of taxpayers use the standard deductions, meaning they do not itemize their tax deductions. But with the changes, that is expected to reach 94 percent, according to the Joint Explanatory Statement of the Committee of Conference.

Standard deductions change year to year due to inflation and in 2018, each group of taxpayers saw an increase. The standard deduction is higher for taxpayers age 65 or older, or blind, and lower for those who can be claimed as a dependent, according to the IRS.

This plus new tax rates for all filers means most people are affected in some way, but business owners will see more permanent changes, according to Richmond-based CPA David Kolts.

“People who are business owners will have the new taxes affect them more positively than people who do not own businesses,” Kolts wrote in an email. “Many of the tax breaks in the tax reform law benefiting individuals are temporary whereas the tax breaks for businesses will remain permanent.”

Kolts said the changes like the standard deductions increase for individuals are not permanent because they will eventually phase out by 2025.

“Although there are benefits for individuals and businesses, most of the benefits for businesses are permanent tax cuts, whereas most of the individual benefits and tax cuts are temporary in nature–they will end after a period of time with most remaining in effect through 2025.”

Property tax reduction

Kolts agreed with other CPAs based in Katy that one of the law’s most notable changes was the new state and local property tax deduction cap—$10,000 or $5,000 for married couples filing separately, according to the law.

Kolts said a second notable change is the new tax brackets. There are still seven tax brackets but the new law sets them at different rates and thresholds for individuals; on the corporate level, there will be one flat tax rate of 21 percent, according to Koltz.

“It seems like there is a bigger benefit for business owners and people who have more money,” Kolts said. “I would just say business owners have an advantage.”

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Amelia Brust
Amelia joined Community Impact Newspaper in November 2015 after working for the Daily News-Record in Harrisonburg, Virginia. She previously wrote for CI's Sugar Land/Missouri City paper and now leads the Katy edition. A graduate of Temple University, Amelia is also a proud Marylander with very specific opinions about eating crabs.
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