2018 TAX PLANNING LETTER
2018 TAX PLANNING LETTER
PLEASE CALL WITH ANY QUESTIONS OR CONCERNS YOU HAVE ON THE FOLLOWING TOPICS
FOR INDIVIDUAL FILERS
1. Lowers (many) individual rates: The bill preserves seven tax brackets, but changes the rates that apply to: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Today's rates are 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.
2. Nearly doubles the standard deduction: For single filers, the bill increases it to $12,000 from $6,350 currently; for married couples filing jointly it increases to $24,000 from $12,700.
3. Eliminates personal exemptions: Today you're allowed to claim a $4,050 personal exemption for yourself, your spouse and each of your dependents. Doing so lowers your taxable income and thus your tax burden. The GOP tax plan eliminates that option.
4. Eliminates 2% Miscellaneous Itemized Deductions: ie. Employee business expenses, investment fees, tax preparation fees, safe deposit box, loss on traditional or Roth IRA.
5. Caps state and local tax deduction: The final bill will preserve the state and local tax deduction for anyone who itemizes, but it will cap the amount that may be deducted at $10,000. Today the deduction is unlimited for your state and local property taxes plus income or sales taxes.
6. Expands child tax credit: The credit would be doubled to $2,000 for children under 17. It also would be made available to high earners because the bill would raise the income threshold under which filers may claim the full credit to $200,000 for single parents, up from $75,000 today; and to $400,000 for married couples, up from $110,000 today.
Like the first $1,000 of the child tax credit, $400 of the additional $1,000 also will be refundable, meaning a low- or middle-income family will be able get the money refunded to them if their federal income tax liability nets out at zero.
7. Creates temporary credit for non-child dependents: The bill would allow parents to take a $500 credit for each non-child dependent whom they're supporting, such as a child 17 or older, an ailing elderly parent or an adult child with a disability.
8. Lowers cap on mortgage interest deduction: If you take out a new mortgage on a first or second home you would only be allowed to deduct the interest on debt up to $750,000, down from $1 million today. Homeowners who already have a mortgage would be unaffected by the change.
The bill would no longer allow a deduction for the interest on home equity loans. Currently that's allowed on loans up to $100,000.
9. Curbs who's hit by AMT: Earlier bills called for the elimination of the Alternative Minimum Tax. The final version keeps it, but reduces the number of filers who would be hit by it by raising the income exemption levels to $70,300 for singles, up from $54,300 today; and to $109,400, up from $84,500, for married couples.
10. Exempts almost everybody from the estate tax: The final bill does not call for a repeal of the estate tax. But it essentially eliminates it for all but the smallest number of people by doubling the amount of money exempt from the estate tax -- currently set at $5.49 million for individuals, and $10.98 million for married couples.
11. MOST of the tax changes take effect for the 2018 tax year. But a few impact other years:
• Affordable Care Penalty will apply for 2017 and 2018 but will not apply in 2019 and forward
• Threshold for medical deductions is 7.5% of adjusted gross income for tax year 2017 and 2018
12. Anyone with a W-2 is going to need to update their withholding allowances:
FOR BUSINESSES AND CORPORATIONS
13. Lowers tax burden on pass-through businesses: The tax burden on owners, partners and shareholders of S-corporations, LLCs and partnerships -- who pay their share of the business' taxes through their individual tax returns -- would be lowered by a 20% deduction, somewhat less than the 23% called for in the Senate-passed bill.
The 20% deduction would be prohibited for anyone in a service business -- unless their taxable income is less than $315,000 if married ($157,500 if single).
14. Includes rule to prevent abuse of pass-through tax break: If the owner or partner in a pass-through also draws a salary from the business, that money would be subject to ordinary income tax rates.
But to prevent people from recharacterizing their wage income as business profits to get the benefit of the pass-through deduction, the bill would place limits on how much income would qualify for the deduction.
15. Slashes corporate rate: The bill cuts the corporate rate to 21% from 35%, starting next year. The bill would also repeal the alternative minimum tax on corporations.
16. Starting 2018 NO 50% deduction for entertainment expenses