2018 Tax Changes Cheat Sheet

Now that your 2017 taxes have been filed (for most of us!), let’s dig in to see what 2018 has in store.  The new Tax Cuts and Jobs Act went into effect December 31, 2017.  Let’s look at the key changes (good and bad) and how we should tax plan.

The Good

1) All tax rates have been lowered, with the top rate being reduced from 39.6% to 37%.

2) The standard tax deduction has been doubled ($12,000 for singles and $24,000 for married couples).  This will force a lot of people from itemizing their deductions to taking the new standard deduction.

3) Fewer people will be subjected to the Alternative Minimum Tax with an increase in exemptions. 

4) The Child Tax Credit has increased to $2,000 per qualifying child under the age of 18.  In addition, you are eligible to take the full credit if your adjusted gross income is less than $200,000 for singles ($400,000 for married couples).

5) If you have “pass-through” income (sole proprietorship, partnership, LLC and S-corporations) and your taxable income is less than $157,500 for singles ($315,000 for married couples) you will be eligible for a 20% tax deduction of your qualified business income.  For questions on how to calculate your qualified business income or if your pass-through income will be higher than the thresholds noted above, please feel free to contact me HERE.  It starts to get complicated.

The Bad

1) The personal exemptions have been eliminated. You used to get a $4,050 deduction for each member of your family.

2) If you are itemizing your deductions, the maximum you can deduct for state income and real estate taxes combined is $10,000.

3) All miscellaneous itemized deductions have been eliminated.  This includes tax preparation fees, investment management fees, employee business expenses and professional dues.  Most people were not eligible to take these deductions in the past since the total had to be greater than 2% of your adjusted gross income.

4) If you are buying a new home, you can only deduct mortgage interest on the first $750,000 of principal.  Any previously held mortgages are grandfathered in at the old threshold of $1,000,000.

5) The moving expense deduction has been eliminated.

6) The casualty loss deduction (except for presidentially declared disasters) has been eliminated.

7) For divorce agreements signed after December 31, 2018, alimony payments are no longer deductible by the payor or included as income by the payee.  Any previous divorce agreements are grandfathered in at the old laws.

What are some planning ideas?

1) Take a closer look at your withholding and/or quarterly tax payments.  If you need help determining appropriate withholdings/payments, please feel free to contact me HERE.

2) Determine if you are going to fall into the new standard deduction or itemized deduction bucket and strategize accordingly.  At year end you can determine if it makes more sense to make a large charitable contribution or payment on a mortgage, real estate or excise tax bill in December or January.

3) Just like before the new tax bill always consider the following:

• Maximizing your retirement plan and/or IRA contributions
• Maximizing your Health Savings Account contributions for high deductible plans
• Look at selling off investments that are sitting on a loss by year end
• For business owners consider deferring income to January and paying larger expenses in December

This is obviously a lot of information (some probably more technical than usual).  If you have any questions or want to discuss in more detail please contact me anytime HERE.