Questions About The New Tax Law? We Have the Answers.
With the passage of the Tax Cuts and Jobs Act, which was signed into law in December 2017, most taxpayers can expect to see significant changes to their 2018 federal tax return. At a high-level, some of the changes affecting individuals are listed below. For a more detailed conversation about these changes, please call us or make an appoint to come into the office for a visit. We look forward to hearing from you.
Tax Rates and Standard Deductions
- There is a reduction in tax rates.
- The standard deduction has increased to $12,000 if single, $18,000 if head of household, and $24,000 if married and filing jointly.
Deductions No Longer Deductible in 2018
- Home Equity Loan (HELOC) interest.
- All miscellaneous itemized deductions, including investment expenses, unreimbursed employee expenses, union dues, and tax preparation costs.
- Casualty/Theft losses, except for federally declared disasters.
- Moving expenses for everyone, except military personnel on active duty.
- Alimony for divorce orders executed after December 31, 2018, but the spouse receiving alimony does not have to declare it as income.
- Entertainment expenses for business.
Deductions Limited in 2018
- State and local taxes are limited to $10,000. If married and filing separately, the limit is $5,000.
- Home mortgage interest is limited to first $750,000 of debt for new loans and, if married and filing separately, $375,000. Existing loans are grandfathered in to a limit of $1,000,000.
Other Tax Changes for Individuals
- Itemized deductions are not subject to phase-out for higher income taxpayers.
- Medical expense deduction threshold is 7.5% of Adjusted Gross Income (AGI) for all taxpayers. This may also affect your 2017 tax return.
- Child Tax Credit is increased to $2,000 per child. Additionally, the phase-out threshold is increased significantly, meaning more taxpayers will qualify.
- Investment income for children under 19, or full-time students, (the Kiddie Tax) is now taxed at estate/trust rates rather than parents’ rates.
- Alternative Minimum Tax remains in effect. Changes to the exemption amount and phase-out income levels mean many individuals currently in AMT will not be subject to it starting in 2018. The increased exemption is now $109,400 for married filing jointly and $54,700 if married and filing separately; however, it phases out when AMT income is more than $1 million for joint filers and $500,000 when filing separately.
- Taxpayers with pass-through income (Schedule C and Schedule E) may be eligible to deduct 20% of their qualified business income.
- Limitation for charitable contributions is increased to 60% of AGI.
- For 529 Plans, $10,000 per year can now be used for tuition at an elementary or secondary public, private, or religious schools.
- Lifetime estate and gift tax exemption increases to $11.2 M for individuals and $22.4 M for married couples.
- Increases to Section 179 and bonus depreciation deductions for business assets.
- No longer able to recharacterize ROTH conversions after they have been made.