Nathan Nydegger, CPA, Saunders & Wangsgard

Hardworking families know that minimizing their tax liability each year is an important part of wise financial management. It’s good to be familiar with basic tax laws so that you can best position your family to save tax dollars. For 2017 taxes, our laws are largely unchanged. However, for 2018 taxes there are many changes that will affect every taxpayer in the country. Here are some important changes you should know about.

The standard deduction nearly doubles. The IRS let’s each taxpayer choose between a standard or itemized deduction on their taxes. This deduction shelters your income from taxation, and, as a result, lowers the tax you pay. The most common itemized deductions are state taxes paid, mortgage interest, and charitable contributions. Many families who own a home or have significant charitable contributions will frequently opt for an itemized deduction. For 2018 and beyond, families previously itemizing may suddenly find that taking the standard deduction is a better choice.

No more personal exemptions. For 2017 and earlier, each person you claimed as a dependent on your tax return resulted in a personal exemption. Exemptions lower your taxable income. For example, in 2017, each exemption you claim will lower your taxable income by $4,050. Those claiming many dependents will consider this a hurtful change.

The Child Tax Credit doubles. Children who are under the age of 17 and you claim as a dependent will generate a $2,000 child tax credit starting in 2018. Credits lower your tax directly and can be quite powerful in saving tax. The credit has previously been at $1,000. Part of the Child Tax Credit is refundable. This will hopefully help many families offset the loss of personal exemptions.

New pass-through business tax deduction. If you own a small business structured as an LLC or S corporation (frequently called “pass-through” entities), you may be entitled to receive an additional 20 percent deduction on your pass-through income. The rules are somewhat complex, so it will be wise to talk to your tax professional to see if your business qualifies for the new deduction.

More favorable treatment for business asset purchases. Small business owners who purchase business assets for their operations will find more favorable depreciation tax laws in 2018. Section 179 (accelerated depreciation) limitations have increased. Plus bonus depreciation of 100 percent can be taken on all asset purchases. Previous bonus depreciation was for brand new asset purchases only. The new tax laws now allow bonus depreciation on used asset purchases.

There are several other changes that are in effect for 2018. There will be new tax brackets and changes to Alternative Minimum Tax (AMT). The corporate tax rate was cut; alimony and moving deductions are eliminated; net operating losses are limited; unreimbursed employee expenses will not be deductible; and state tax deductions are limited. Now more than ever, it is important to have a good relationship with your CPA.