VBJ February 19

THE VALLEY BUSINESS JOURNAL
12 www.TheValleyBusinessJournal.com
February 2019
How Will Tax Reform Impact Your
Deductions and Credits This Tax Season?
MONEY
by
Esther Phahla,
CPA, CTC, MST
With tax season here, chances
are you are probably asking yourself
which tax deductions and tax credits
will you be able to claim for your
2018 tax return, unless of course you
did some tax planning before the end
of 2018 and you have an idea of what
to expect this tax season.
Tax credits and tax deductions are
said to be the most satisfying part of
preparing your tax return, because they
reduce your tax bill, and put money
into your pockets. But they do this in
different ways. First, let’s review the
difference between a deduction and a
credit.
A Tax deduction: is used to decrease
taxable income, thereby decreasing the
amount of tax owed. They are calculated
using your marginal tax bracket.
For example, if Rose is in the 24% tax
bracket, a $1,000 tax deduction will
save her $240.
A Tax Credit: is subtracted not from
taxable income but directly from a
person’s tax liability; thus it reduces
taxes dollar for dollar. It could be refundable
or non-refundable. Looking
at the example with Rose above, a tax
credit of $1,000 will lower her tax bill
by $1,000.
There are 2 types of Tax Deductions:
Standard Deduction and Itemized
Deductions. You can use one or the
other but not both. It is generally recommended
that you take the greater of
the two unless special circumstances
apply. Many taxpayers who itemized
in the past will face a big question this
year: whether is it still worth itemizing
given the new higher standard
deduction?
1. Standard Deduction: is a set
amount that ensures all taxpayers
have at least some income that
is not subject to federal tax (i.e.,
tax-free). Even if you have no
other qualifying deductions, the
IRS lets you take this deduction
and no-question about it. It varies
according to your filing status.
For 2018 tax returns the standard
deduction has nearly doubled
($12,000 for Single filers and
Married filing separate, $24,000
for Married filing jointly, $18,000
for Head of household).
2. Itemized Deductions: allow you to
list qualified expenses on your tax
return, the sum of which is used to
lower your adjusted gross income,
such as home mortgage interest on
up to $750,000 of new home acquisition
debt, state and local taxes
up to $10,000, medical expenses
over 7.5% of your adjusted gross
income and charitable donations.
Let’s recap a few of the common credits
and deductions for 2018:
1. Child tax credit: increased to
$2,000 and a new credit of $500
for non-children dependents was
introduced.
2. Credit for child care: up to $1,050
for one child and $2,100 for 2+
children.
3. Earned Income Credit: up to
$6,431 with 3+ children.
4. Education credits: up to $2,500 for
the American Opportunity Credit,
up to $2,000 per return Lifetime
Learning credit, up to $2,500 Student
loan interest deduction.
The following are eliminated:
1. Exemptions: With the increase of
the standard deduction, came the
elimination of the exemptions.
2. Unreimbursed employee expenses.
3. Moving expenses: except for active
duty military.
Consult your Tax Advisor to make
sure you are taking advantage of all
the tax deductions and credits that are
available to you.
Esther Phahla is a Certified Public
Accountant and Certified Tax
Strategist in Temecula. She is the
Best-Selling Author of tax planning
books, “Why Didn’t My CPA Tell Me
That” and “10 Most Expensive Tax
Mistakes That Cost Business Owners
Thousands”. She also holds a Masters
of Science in Taxation. She can
be reached at (951) 514-2652 or visit
www.estherphahlacpa.com
“ Tax credits and tax
deductions are said
to be the most satisfying
part of preparing
your tax return,
because they reduce
your tax bill, and put
money into your
pockets.