By Tracy McNew
President Trump signed the Republican’s tax overhaul bill into law on Friday, Dec. 22, 2017. The new law will not ap-ply to your 2017 taxes, but it will impact all of us in 2018.
How is this new law going to affect you?
The Montanian asked two local accountants this question, but both de-clined to answer because they hadn’t yet reviewed the law fully.
“The new tax reform law, commonly called the ‘Tax Cuts and Jobs Act’ (TCJA), is the biggest federal tax law overhaul in 31 years, and it has both good and bad news for taxpayers,” said Ka-lispell accountant Brien Kreps in his January newsletter.
Another person who was willing to weigh in was local business owner, Jason Williams. Williams has a Masters degree in Business Administration and about 20 years of ex-perience working in fi-nance.
Williams said via email last Friday, “it appears the new tax bill will help Lin-coln County immensely.”
Kreps summarized the changes for individuals and businesses using bul-let points, and Williams demonstrated his points with examples.
A few of the major changes that both Kreps and Williams pointed out are an increase in the standard deduction and in child tax credits for indi-viduals. Both of these things have almost dou-bled, and in addition, Wil-liams said “the Child Tax Credit has been changed from non-refundable to refundable.”
According to Williams, these three factors alone will be very beneficial for many in Lincoln County.
Williams said, “A mar-ried couple with two chil-dren filing jointly who have a household income of $50,000 would have had a tax liability of about $2,700 under the 2017 tax code.”
“Under the new tax code,” Williams said, “that same family who would have paid $2,700 in 2017 will now receive a refund of about $1,000, for an increase in disposable income of about $3,700 which is good for the local economy.”
Other parts of the tax overhaul that will impact individuals include expan-sion of the allowable use of 529 college accounts and elimination of the individual mandate on health insurance that will take effect in 2019.
For businesses, Wil-liams said “one of the big-gest impacts for the local economy will be the in-crease in ‘bonus deprecia-tion’ from 40% to 100%.”
He again explained with an example.
“A local construction company that heads into December with an antici-pated profit of $50,000 for the upcoming year could purchase a $50,000 piece of equipment and effec-tively reduce their tax liability to zero,” Williams said.
Under the 2017 tax code depreciating equip-ment would have helped, but not nearly as much.
“If a 10% ($5,000) down payment was made on that equipment, the business would still re-ceive $45,00 in income but have zero income tax liability and, in addition, banks will typically add back depreciation when looking at financial state-ments so they will most likely continue to view the business’s income at the $50,000 level,” Williams said.
This encourages busi-nesses to invest in needed upgrades because they will have less tax liability with higher depreciation and it will not negatively impact their ability to qualify for financing.
Although this is good news for many local fami-lies and businesses, Presi-dent Trump’s promise of simplicity isn’t quite as clear-cut as he made it sound.
No one will be able to file their tax return on a postcard, and CNN Money reports that tax reform will increase deficits by $1.46 trillion over the next ten year.
Kreps wrote, “There are additional rules and limits that apply, and the law includes many addi-tional provisions. Contact your tax advisor to learn more about how these and other tax law changes will affect you in 2018 and beyond.”
By Tracy McNew