On Friday December 22nd, 2017 President Trump signed into law a new overhauled tax plan.  A lot has been changed in this new tax plan and we are here to help you understand the most of the changes.

There is no general answer on how these changes will affect you personally.  Each individual tax payer files their taxes differently, so while some of these changes may have a huge impact on one tax payer it may have a minimal affect on another.  When you come in to file your taxes this year feel free to ask us how these will affect you in the upcoming years and we will do our best to prepare you for the new changes.

 

INDIVIDUAL RETURNS

TAX RATES

For tax years 2018 through 2025, the following rates apply to individual taxpayers:

Single taxpayers

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000 37%


Heads of households

Taxable income over But not over Is taxed at
$0 $13,600 10%
$13,600 $51,800 12%
$51,800 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000 37%


Married taxpayers filing joint returns and surviving spouses

Taxable income over But not over Is taxed at
$0 $19,050 10%
$19,050 $77,400 12%
$77,400 $165,000 22%
$165,000 $315,000 24%
$315,000 $400,000 32%
$400,000 $600,000 35%
$600,000 37%


Married taxpayers filing separately

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $300,000 35%
$300,000 37%


Estates and trusts

Taxable income over But not over Is taxed at
$0 $2,550 10%
$2,550 $9,150 24%
$9,150 $12,500 35%
$12,500 37%

Special brackets will apply for certain children with unearned income.

PERSONAL EXEMPTIONS

The act repealed all personal exemptions through 2025. This means you lose the $4000 deduction per person claimed on your return.

The withholding rules will be modified to reflect the fact that individuals can no longer claim personal exemptions and you will see a change in your paycheck probably sometime in Mid-February.

INDIVIDUAL ALTERNATIVE MINIMUM TAX

While the House version of the bill would have repealed the alternative minimum tax (AMT) for individuals, the final act kept the tax, but increased the exemption.

For tax years beginning after Dec. 31, 2017, and beginning before Jan. 1, 2026, the AMT exemption amount increases to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return) and $70,300 for all other taxpayers (other than estates and trusts). The phaseout thresholds are increased to $1 million for married taxpayers filing a joint return and $500,000 for all other taxpayers (other than estates and trusts). The exemption and threshold amounts will be indexed for inflation.

HEATH INSURANCE PROVISIONS

The new law repeals the health insurance mandate for individuals without insurance to pay a penalty.  The penalty is reduced to -$0- starting in 2019.

*When you file your income tax return you elect to take either the Standard Deduction or the Itemized Deductions.  Usually whichever deduction is higher and has the best tax results is the one that is chosen on your return.  With these new changes, if you have itemized in the past you may not itemize on future returns.*

STANDARD DEDUCTIONS

The standard deduction amounts have been effectively doubled and will make up for some of the loss from the personal exemptions being repealed.

Single                        $12,000

Married Filing Joint   $24,000

Head of Household   $18,000

ITEMIZED DEDUCTIONS

The act repealed the overall limitation on itemized deductions, through 2025.

Mortgage Interest: The home mortgage interest deduction was modified to reduce the limit on acquisition indebtedness to $750,000 (from the prior-law limit of $1 million).

A taxpayer who entered into a binding written contract before Dec. 15, 2017, to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases that residence before April 1, 2018, will be considered to have incurred acquisition indebtedness prior to Dec. 15, 2017, under this provision, meaning that he or she will be allowed the prior-law $1 million limit.

Home-equity loans: The home-equity loan interest deduction was repealed and cannot be deducted through 2025.

State and local taxes: The act allows individuals to deduct up to $10,000 ($5,000 for married taxpayers filing separately) for any combination of state and local income tax(state withholdings), state and local property taxes, or state sales tax.

Medical Expenses:  This deduction has been temporarily improved.  For tax years 2017 & 2018 the medical expenses can be deducted if they exceed 7.5% of your adjusted gross income.  In 2019 the rate will revert back to 10% as it was in 2016.

Casualty losses: This deduction is eliminated, but is allowed with certain modifications, for losses incurred in federally declared disaster areas.

Gambling losses: The act clarified that the term “losses from wagering transactions” clarifies that the limitation of losses from wagering transactions applies not only to the actual costs of wagers, but also to other expenses the taxpayer incurred  in connection with his or her gambling activity.

Charitable contributions: The act increased the income-based percentage limit for charitable contributions of cash to public charities to 60%. It also denies a charitable deduction for payments made for college athletic event seating rights.

Miscellaneous itemized deductions: All miscellaneous itemized deductions subject to the 2% floor under current law are repealed through 2025 by the act.  These deductions include Appraisal Fees, Employee Business Expenses, Investment Expenses, Job-hunting Expenses, Legal Fees, Losses on IRA Investments, Professional Dues, Union Dues, Safe Deposit Box Fees, Tax Preparation Fees, Work Clothing and Uniforms.  None of the aforementioned expenses can be deducted on your income tax returns.

OTHER PROVISIONS FOR INDIVIDUALS

Alimony: For any divorce or separation agreement executed after Dec. 31, 2018, the act provides that alimony and separate maintenance payments are not deductible by the payer spouse. It also repealed the provisions that states those payments must be included as income by the payee spouse.

Child Tax Credit:  The credit is increased to $2000, but only the first $1400 is refundable.  The phaseout thresholds were also increased with the new law. In addition, the new law created a $500 nonrefundable credit for non-child dependents.

Educator’s classroom expenses: The final act did not change the allowance of an above-the-line $250 deduction for educators’ expenses incurred for professional development or to purchase classroom materials.

Moving expenses & reimbursements: Moving expenses related to job relocation are now disallowed, except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station.

Bicycle Commuting Reimbursements: The act repealed the exclusion of qualified bicycle commuting expenses from gross income or wages.

IRA Recharacterizations: The rule permitting taxpayers to recharacterize a Roth IRA back into a traditional IRA after a conversion is repealed.

Section 529 Plans: The list of qualified expenses for Section 529 plans is expanded to include tuition at an elementary or secondary public, private or religious school, plus home schooling expenses, for up to $10,000 per year.  Keep in mind when using this money towards these elementary and high school expenses will deplete the 529 account funds to be used towards higher education as it was originally designed.

*This is just a sampling of all the changes made with the new tax law*

 

BUSINESS RETURNS

  • The corporate tax rate was permanently lowered to 21 percent, effective Jan. 1, 2018.
  • Elimination of deductions for certain entertainment expenses but retention of the 50 percent deduction for food and beverages through 2025.
  • An increase to $1 million in Section 179 expensing for smaller businesses.
  • A deduction for corporations on foreign-derived intangible income (FDII), intended to reduce the effective tax rate on certain income from export transactions.
  • A one-time repatriation tax on corporate earnings held overseas, applying different rates to liquid assets (15.5 percent) and illiquid assets (8 percent), and payable over eight years in back-loaded installments.
  • Repeal of the corporate alternative minimum tax (AMT) and the Section 199 domestic manufacturing deduction, with rules allowing for the refunding of prior-year AMT credits.
  • Retention of the research and development credit  along with a requirement that research expenditures  paid or incurred after Dec. 31, 2021, be capitalized
    and amortized over 5 years (or 15 if incurred outside of the U.S.).
  • Limitations on interest deductions for large businesses to the total of interest income plus 30 percent of “adjusted taxable income” (roughly EBITDA through 2021 and EBIT thereafter), with unlimited carry-forwards of unused deductions.
  • Limitations on net operating loss (NOLs) deductions to 80 percent of taxable income for losses incurred after 2017.
  • Allowance of current deductions for the cost of new investments in qualified depreciable tangible assets (including used property new to a taxpayer) acquired and generally placed in service between Sept. 27, 2017, and Jan. 1, 2023 (with a phasedown for property placed in service in years subsequent to 2022 and before Jan. 1, 2028).
  • A new timing rule that accelerates the inclusion of items of income for certain accrual-method taxpayers to when the income is taken into account for financial statement purposes. The rule would not apply to items subject to a special method of accounting (such as the installment method) but would apply to original issue discount.
  • Repeal of certain exceptions to the current Section 162(m) limitations on executive compensation, and imposition of a new excise tax on certain excess compensation received by executives of tax-exempt organizations.
  • Retention of the low-income housing tax credit and new markets tax credits.
  • A 20 percent deduction (reducing the maximum marginal rate to 29.6 percent) on certain pass-through domestic-sourced (including from Puerto Rico) business income from sole proprietorships, partnerships and Subchapter S corporations and from qualified REIT or cooperative dividends. Estates and trusts also are eligible to claim the deduction. Noncorporate taxpayers are not permitted to deduct business losses in excess of business income plus $500,000 (for joint return filers).