Tax Cuts & Jobs Act - Individual Impact


The Tax Cuts & Job Act provides for many changes to individual tax provisions. With a few minor exceptions, most of the changes are effective for the 2018 tax year and sunset after 2025 (unless they are renewed by Congress).

There are still many questions that the IRS and Congress need to answer about some of the applications of the law, but here are some of the major points.

THE BASICS

  • There are still seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%

  • For 2018, the standard deduction is nearly doubled: $12,000 for single, $18,000 for head of household, & $24,000 for married filing jointly

  • Personal exemptions are suspended

  • The child tax credit is increased to $2,000 (up to $1,400 refundable)

  • NEW $500 credit (non-refundable) for non-child dependents who meet dependency requirements

  • Individual AMT not repealed, but exemption amounts are increased

  • Dividend and capital gains rates are unchanged, however breakpoints no longer follow tax brackets for regular income tax:

  • 0% for MFJ under $77,200

  • 15% for MFJ between $77,200 and $479,000

  • 20% for MFJ over $479,000

CHANGES TO ITEMIZED DEDUCTIONS

  • Repeal of the overall limitation on itemized deductions

  • For 2018 only, medical deduction threshold is 7.5% (reverts to 10% in 2019)

  • Mortgage interest is limited to $750,000 of debt

  • Debt prior to 12/15/17 is grandfathered at $1M limit

  • Home equity interest is no longer deductible

  • State and local tax is limited to $10,000

  • Includes state income tax, real estate tax, and personal property tax

  • Misc. deductions subject to 2% threshold no longer deductible

  • Unreimbursed employee expenses

  • Tax preparation fees

  • Hobby expenses

  • Investment fees/expenses

  • Legal fees

  • Safe deposit fees

EXTENDED PROVISIONS

  • Exclusion of discharge of indebtedness on principal residence

  • Deduction of mortgage insurance premiums

  • Above-the-line deduction for qualified tuition and fees

  • Credits for qualified energy property

20% PASS-THROUGH DEDUCTION ON QUALIFIED BUSINESS INCOME

  • Calculation is very complex and can be limited based upon taxable income as well as type of trade/business income

  • More guidance is needed on how this deduction will be applied

CHARITABLE CONTRIBUTIONS

  • AGI limitation is increased to 60% (from 50%)

  • No deduction for right to purchase of athletic tickets

  • Written acknowledgement must be received for any contribution over $250

OTHER IMPACTS

  • Affordable Care Act: Individual Mandate is repealed 2019 and forward (still in effect for 2018)

  • Ability to recharacterize a ROTH conversion to a traditional IRA is removed

  • 2018 estate tax exemption: $11.2 million

  • 2018 gift tax annual exclusion: $15,000

  • Sec 529 education plans can now be used for tuition at an elementary or secondary public, private, or religious schools

  • Alimony is no longer deductible by payer nor includible by the recipient (for divorces executed after 12/31/18)

  • Moving expenses deduction is repealed (except for members of the Armed Forces)

  • Kiddie Tax is tied to trust and estate tax rates

FINAL THOUGHTS

Due to the many changes that the new law contains, many tax planning strategies will have to be revisited. Additionally, with the reduction of the corporate tax rate to 21%, choice of business entity will also need to be reevaluated.

As you consider how the new tax law will impact you, we are hear to answer questions and provide guidance. Please feel free to reach out to us at any time. We are here for you!

#tax #incometax #taxlaws #TaxCutsJobsAct #taxplanning

15 views0 comments

Recent Posts

See All

STAY INFORMED

Partnering with you for your financial freedom and future.

© 2021 by Mark J Peniston CPA LLC, San Antonio, TX

TEL: 210.201.5207

FAX: 210.978.5405