🔒How to maximize little-known benefits of the 2018 tax reform law

The 2018 Tax Cuts and Jobs Act impacted virtually every single American — representing the largest change to the U.S. tax code in 30 years. And while the sheer magnitude of the change was unnerving, it quickly turned into a political football. Looking back on the first year, the effects were overall very positive.

The Urban-Brookings Tax Policy Center, an independent, non-partisan group that analyzes tax policy nationwide, reports that 65% of American households paid less in taxes, 6% paid more and the rest paid about the same. An internal review of our clients’ performance mirrored those national statistics and also shined a bright light on one category — 90% of small businesses made more and paid less in taxes. Those tax savings are often reinvested through job creation, expansion of employee benefits and real estate investments. And I’ve also seen our clients increase their contributions to retirement and college savings accounts.

But we also know that because the tax law is quite complicated, many aren’t taking full advantage of the changes.

It took our CPAs and accounting team months to fully learn and understand the intricacies of the tax change, so consider this an overview.

For small businesses

• Check your classification: The tax rate for C-corporations dropped from 35% to a flat 21%; and for pass-throughs (S-corps, LLCs, sole proprietors) the Qualified Business Income deduction allowed a 20% deduction from taxable income. These changes, by far, were the best benefits. And while most everyone did better, now is the time to analyze your filing status to determine which classification is most advantageous for your company.
• Buy a vehicle: If you buy a car, truck or SUV and use it for work (at least 50%), the new law provides big improvements. For a passenger vehicle, you may deduct as much as $18,000 of the purchase price in the first year. For trucks, SUVs or vans, you may be able to write off the entire price.
• Offer paid-family leave: For the first time ever, employers that offer paid family or medical leave will receive a tax credit of up to 25% on all wages paid to the employee. This is a win-win for employees and employers. The incentive encourages and rewards employers for strong HR policies and allows employees to focus on family without financial worry. The hopeful result is increased employee retention and morale, and a boosted bottom line for business.

For individuals

• Open a 529 Plan: This type of college savings account allows invested funds to grow tax free — so whether you have kids now, or plan to in the future, the change in the law expands how you can use these funds. Up until 2018, 529 funds could only be used for college — but now other educational uses like private school tuition, books or tutors are also permitted. If you haven’t set up a 529, there are two great incentives offered in Maine: the $500 Alfond Grant and the Next Step Matching Grant. This is ‘free’ money and you shouldn’t miss it.
• Expand your family? While a tax break isn’t a reason to have another baby, you should be aware of the new benefits in this category for parents. The child tax credit doubled to $2,000; and also entitled some to claim head of household or an earned income tax deduction.
• Go green: There are new renewable energy tax credits and existing benefits, such as solar panels, solar water heaters and geothermal heat pumps. The new credits can equal up to 30% of the cost of your project. There is no cap on what you can receive. The credit is a dollar-for-dollar reduction in taxes you owe.

Save yourself countless hours reading tax law — it’s really rather tedious — and call your accountant to review your position and get ready for tax season. It’s just around the corner.

Tabitha Swanson founded Westbrook-based accounting firm Swanson Group in 2012. She can be reached at tabitha@yourmainecpa.com.