gototopgototop

Certified Public Accountants

Certified Public Accountants

To: Clients and Friends

 

From: Neil S. Kahn

          Ashley BK Grubbs

 

Date: January 30, 2018

 

Subject: Highlights of tax code changes for 2018 and beyond


On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017. This marked the largest tax reform since the 1986 Tax Reform. The effects are widespread and will affect all individuals and businesses countrywide. Most all provisions go into effect on January 1, 2018 and expire at the end of 2025.

While many facts are clearly outlined in the new law, there are some provisions which will require further guidance.

 

2018

 

TAX RATES

 

Single Taxpayers:

10 percent                $ .00 to $ 9,525.00
12 percent            9,525.00 to 38,700.00

22 percent          38,700.00 to 82,500.00
24 percent        82,500.00 to 157,500.00

32 percent      157,500.00 to 200,000.00
35 percent      200,000.00 to 500,000.00

37 percent              500,000.00 and over

 

Joint Filers:

10 percent             $ .00 to $ 19,050.00
12 percent         19,050.00 to 77,400.00

22 percent       77,400.00 to 165,000.00
24 percent     165,000.00 to 315,000.00

32 percent     315,000.00 to 400,000.00
35 percent     400,000.00 to 600,000.00

37 percent             600,000.00 and over

[Return to Top]

 

KIDDIE TAX

Applies to children under age 18 and children over 18 but under age 24 who are full-time students that have unearned income. There are exceptions to this rule.

There have been changes to this area of the law. Please contact us if you would like to discuss this further.

 

CAPITAL GAINS

The top capital gains rate has remained at 20% for single filers with taxable income over $425,800.00 and for joint filers with taxable income over $479,000.00. For single taxpayers whose taxable income is between $38,600.00 and $425,800.00 and joint taxpayers whose taxable income is between $77,200.00 and $479,000.00, the capital gains rate will remain at 15%. For single taxpayers whose taxable income does not exceed $38,600.00 and joint taxpayers whose taxable income does not exceed $77,200.00, the rate remains at 0%.

Capital assets held less than one year will continue to be taxed at the individual’s tax rate.

Capital losses can be used to offset capital gains. If the losses are greater than the gains, you can deduct a maximum of $3,000.00 against other income. If you cannot utilize all your capital losses in the current year, you can carryover the unused loss to future years.

 

DIVIDEND INCOME

Certain dividends received by a shareholder will be taxed at the same capital gains rates. For most taxpayers the maximum rate has remained at 15%. For single filers with taxable income over $425,800.00 and for joint filers with taxable income over $479,000.00, the maximum rate has remained at 20%. For single taxpayers whose taxable income does not exceed $38,600.00 and joint taxpayers whose taxable income does not exceed $77,200.00, the rate remains at 0%.

 

PASS-THROUGH INCOME


The new law introduced a deduction from domestic qualified business income from a partnership, S Corporation or sole proprietorship. This deduction is subject to income limitations as well as other calculated limitations.

[Return to Top]

 

MOVING EXPENSES

Moving expenses related to a job change are no longer tax deductible.

[Return to Top]

 

ALIMONY (INCOME AND DEDUCTION)

For divorces finalized in 2018 and beyond, there is no deduction for alimony paid and alimony received is not includable in income.

There have been modifications for pre-2018 divorces.

[Return to Top]

 

INDIVIDUAL RETIREMENT ACCOUNTS

Annual limit has remained at $5,500.00.

For taxpayers aged 50 or older, a "catch-up" contribution is available. The amount is $1,000.00. If you qualify for an Individual Retirement contribution, you qualify for this "catch-up" contribution.

 

ITEMIZED DEDUCTIONS

There is no longer a phase out of itemized deductions.

[Return to Top]

 

PROPERTY TAX, STATE AND LOCAL INCOME & SALES TAX

Taxpayers may now only deduct up to $10,000.00 of combined property taxes, and state and local income or sales taxes.


MORTGAGE INTEREST

Taxpayers may now only deduct mortgage interest on qualified acquisition debt up to $750,000.00.

Taxpayers may no longer deduct interest on home equity loans.

 

MEDICAL EXPENSE DEDUCTION

The threshold for deducting medical expenses has returned to 7.5% of adjusted gross income for all taxpayers. This is in effect for 2017 and 2018 only.

 

MISCELLANEOUS ITEMIZED DEDUCTIONS

Miscellaneous itemized deductions that are subject to the 2% limitation are no longer deductible. This includes unreimbursed employee business expenses, union dues, investment expenses and expenses for the production or collection of income, among others.

 

STANDARD DEDUCTION

This has significantly increased to $24,000.00 from $12,700.00 for married individuals filing a joint return and to $12,000.00 from $6,350.00 for single individuals. An additional standard deduction of $1,300.00 is allowed for married filers and $1,600.00 is allowed for single taxpayers who are blind and/or over the age of 65.

[Return to Top]


DEPENDENTS STANDARD DEDUCTION

There is no longer a dependent standard deduction.

 

PERSONAL EXEMPTIONS

There are no longer any personal exemptions.

 

DEPRECIATION

For equipment, furniture and fixtures and off-the-shelf computer software that qualify for a Code Section 179 expending deduction, the deduction has increased to $1,000,000.00 from $510,000.00. This deduction is eliminated if your total qualified property purchases exceed $2,500,000.00 during the year.

Taxpayers may now take 100% bonus depreciation on new and used property purchased after September 27, 2017.

 

ENTERTAINMENT EXPENSES

Business entertainment expenses, including meals and tickets to sporting events, that were previously subject to the 50% limitation are no longer deductible. Meal expenses incurred while traveling on business are still 50% deductible. Meal expenses for office holiday parties are also still deductible.

Membership dues for any club organized for business, pleasure, recreation or other social purpose are also no longer deductible.

[Return to Top]

 

BUSINESS USE OF PERSONAL VEHICLE

The standard mileage rate for business use of your personal vehicle has increased to 54.5 cents from 53.5 cents per mile.

 

EMPLOYER-SPONSORED RETIREMENT PLANS

Taxpayers who are participants in 401(K) plans, 403(b) annuities, and salary reduction SEP plans can contribute up to $18,500.00.

For taxpayers aged 50 or older, a "catch-up" contribution has remained at $6,000.00.

 

SOCIAL SECURITY TAX

The wage base has increased to $128,400.00 from $127,200.00.

 

ALTERNATIVE MINIMUM TAX

For 2018, the AMT exemption increased to $109,400.00 from $84,500.00 if married filing a joint tax return and to $70,300.00 from $54,300.00 for single individuals.

In addition, the phase out threshold has been increased to $1,000,000.00 for married filing joint taxpayers and $500,000.00 for single taxpayers.

 

CHILD TAX CREDIT

The credit has increased to $2,000.00 from $1,000.00 for each qualifying child. The credit is phased out if your adjusted gross income, with certain modifications, exceeds $400,000.00 for joint filers and $200,000.00 for single taxpayers. These phase out thresholds have increased drastically.

 

AFFORDABLE CARE ACT

For 2018, the shared responsibility payment remained at $695.00 per adult and $347.50 per child or 2.5% of household income. The amount owed is 1/12 of the annual payment for each month that a person or person’s dependents are not covered.

Beginning in 2019, the shared responsibility payment has been reduced to $0.00.

 

GIFT TAX EXEMPTION

All taxpayers are allowed to gift monies to anybody they choose. This amount will increase to $15,000.00 from $14,000.00.

[Return to Top]

 

CONCLUSION

As always, our goal with this memo is to provide information that affects the majority of our clients. While many of the outlined provisions are clear as to how they will affect taxpayers, there are some that will require additional guidance from Congress on how to property implement the new laws. We will continue to monitor any changes and developments that occur.

By working together and with proper planning, we may be able to take advantage of some of these changes and lower your tax obligations today and into the future. If you have children, grandchildren, or are saving for your retirement, there are provisions that become very important to you. If you are contemplating a financial transaction and are not sure of the tax implications or want to know more about a particular tax law change, please feel free to contact us.

 

Material discussed in this memo is meant to provide general information and should not be acted on without obtaining professional advice appropriately tailored to your individual needs.

In order to comply with requirements imposed by Treasury Department regulations, we inform you that any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or any tax-related matters addressed herein.