EFFINGHAM — There's good news and not so good news when it comes to the new GOP tax plan, according to one local accountant.
Matt Cekander, certified public accountant and partner at Doehring, Winders and Company, gave a glimpse of the new federal tax law during the Effingham County Chamber of Commerce's First Friday luncheon.
While many of the changes only affect this year and the years ahead, one change Cekander cited is retroactive for the 2017 tax year and benefits people deducting medical expenses.
“The 10 percent hurdle went down to 7.5 percent,” Cekander said, meaning if medical expenses exceed 7.5 percent of their adjusted gross income, they can claim a deduction for those expenses in 2017 and 2018.
Cekander, who is also the chamber's board chairman, said the biggest question people are asking about is whether or not the tax law was simplified and if there were significant changes.
“It was suppose to go from seven tax brackets to two or three,” Cekander said. “It went from seven to seven, so, there is not much simplification there.”
“What is the good news in my opinion is if you look at the rates, they either stayed the same or went down,” Cekander added. “This is set to go through 2025, so whether Congress holds to that or not I don't know because there will be elections between now and then. These laws are set to repeal back in seven years.”
Cekander said one of the more noteworthy changes in the tax law would be for those who qualify for the Child Tax Credit. Currently, families with children under age 17 by the end of the year qualify for a $1,000 tax credit.
“That now goes to $2,000 per child,” Cekander said. “It used to phase out at a total income of $200,000 a year, now, married filing jointly can make up to $400,000 and still get a credit of $2,000 per child.”
He also made a clarification in changes to the entertainment deduction. Under the changes in the tax law, business deductions for entertainment was reduced from 50 percent to zero in 2018. However, 50 percent of purchased meals can still be deducted as a business expense.
Cekander said the individual mandate to have health insurance drops after 2018.
"I don't know what that means for health insurance costs, but if you don't have insurance this year you will have a penalty. In 2018, if you don't have insurance, you will have a penalty and for 2019 it won't hurt you as an individual.” Cekander said.
“For companies who have fewer than 50 employees, you can still do a qualified small employer HRA, health reimbursement arrangement,” Cekander added, referring to a federal tax legislation that came in effect at the end of 2016. “It's a planning opportunity there that I think is underutilized and don't know why more people aren't using it.”
Cekander also talked about some of the guidelines businesses and individuals should follow in regards to record retention and the wide range of potential legal and tax problems that could arise if records are discarded.
Rather than the three to seven years the IRS recommends you keep your tax returns, Cekander said it should be longer.
“Hold on to your income tax returns indefinitely, forever,” he said.
“The burden of proof is always on the taxpayer,” Cekander said. “If they (IRS) suspects fraud, they can go back forever.”