There are lots of changes to the tax code that many taxpayers will see during the 2018 tax reporting season. Taxpayers who have businesses that are pass-through entities will see these changes we will highlight here on their personal tax return.
The summary below is not an exhaustive list of the changes but only a highlight of some of the changes impacting your individual personal tax return.
Here are the changes to the standard deduction you can expect for your 2018 individual tax return. These have increased by $11,300 for Married, $5,650 for single and $8650 for the head of household filers.
Personal Exemptions have been repealed under the TCJA. So there are no more personal exemptions for yourself, spouse or dependents now through January 1, 2026, which used to be $4050 each.
CHILD TAX CREDIT
The TCJA increases the Child Tax Credit from $1000 to $2000 per child along with a $500 nonrefundable credit for dependents other than qualifying children. All provisions are effective for #tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026.
STATE & LOCAL TAX (SALT)
Under the 2017 Tax Reform state and local sales, income, or property taxes can be deducted up to $10,000 ($5,000 for a married taxpayer filing a separate return) for tax years beginning after Dec. 31, 2017, and beginning before Jan. 1, 2026. The previous tax code had no $10k cap on this deduction.
MORTGAGE INTEREST DEDUCTION
Did you buy a house this year? The Tax Cuts and Jobs Act reduces the mortgage interest deduction to interest on $750,000 of debt incurred after Dec. 15, 2017. The $1 million limitation remains for older debt. The deduction is not limited to interest on a taxpayer’s principal residence. For tax years beginning after Dec. 31, 2025, the limitation reverts back to $1,000,000 regardless of when the debt was incurred..
The Tax Cuts & Jobs Act eliminates the deduction for alimony payments. The payee receiving alimony no longer has to include payments into income. This provision is effective for divorce decrees, separation agreements, and certain modifications entered into after 2018.
For tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026 the Tax Cut and Jobs Act suspends the deduction for moving expenses except for active duty members of the Armed Forces who have military orders for the move.
2% of AGI MISCELLENOUS ITEMIZED DEDUCTIONS
The Tax Cut and Jobs Act suspends all miscellaneous itemized deductions that are subject to the 2% floor under present law for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026 such as Unreimbursed employee expenses
- Investment advisory fees
- Safe deposit rentals
- Tax preparation fees
- Casualty and theft losses
The previous threshold for medical expenses was 10% of adjusted gross income (AGI) but with the tax reform act for tax years beginning after Dec. 31, 2016, and ending before Jan. 1, 2019, the Act reduces the medical expense deduction floor to 7.5% of adjusted gross income.
529 EDUCATION PLANS
Under previous tax law, the benefits of 529 plans were limited to a college education only but now the Tax Cut and Jobs Act expands to K-12 private school tuition up to $10,000 per year. The provision applies to distributions made after Dec. 31, 2017.
The new individual tax rates are as follows:
The Act has seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These brackets apply to tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026
The new tax law will impact your taxes for the 2018 filing season beginning in January but you can plan now to soften any financial blow to your pockets. Of course good record keeping and documentation makes the tax reporting process a lot easier. It’s never too late to get started. If you need help with your business finances don’t hesitate to reach out and schedule a consultation with Stellar Ledgers.