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Semelhante a 2018 Tax reform update
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2018 Tax reform update
- 1. Tax Reform Update For Individuals and Families
- 2. Cedrick West, CPA • Owner of C. S. West & Associates, PA • Focus on business tax, individual tax, outsourced accounting and business consulting
- 3. Changes in Tax Rates The 2018 tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37% The new tax rates applicable to a child’s unearned income of more than $2,550 are 24%, 35%, and 37%
- 4. Federal income tax withholding may need adjustment • The Tax Cuts and Jobs Act changed the way taxable income is calculated and reduced the tax rates on that income • The IRS had to address and make changes to income tax withholding in response to the new law as soon as possible after it passed. This issue affects every taxpayer who receives a paycheck. • To help with this, the IRS issued a new Withholding Calculator and updated Form W-4 to help you check and update your withholding with your employer, if necessary. • You can use the Withholding Calculator to estimate your income tax.
- 5. Alternative minimum tax (AMT) AMT exemption amount has been increased to $109,400 for married taxpayers who file jointly and $70,300 for all other taxpayers The exemption phases out if adjusted gross income (AGI) exceeds $1 million for married taxpayers and $500,000 for all other taxpayers. The AMT exemption is indexed for inflation.
- 6. Personal and dependent exemptions THERE ARE NO PERSONAL OR DEPENDENT EXEMPTIONS UNDER THE NEW TAX LAW. THE REPEAL OF THESE EXEMPTIONS IS EFFECTIVE THROUGH DEC. 31, 2025.
- 7. Standard deduction Effective Jan. 1, 2018, the standard deduction is: • $18,000 for head of household • $24,000 for married filing jointly • $12,000 for Single and MFS 1 Jan. 2018 The increased standard deduction is effective through Dec. 31, 2025. 31 Dec. 2025
- 8. Changes to Itemized Deductions • In addition to nearly doubling standard deductions, the Tax Cuts and Jobs Act changed several itemized deductions that can be claimed on Schedule A, Itemized Deductions.
- 9. The following changes have been made to itemized deductions that can be claimed on Schedule A.
- 10. Limit on overall itemized deductions suspended. You may be able to deduct more of your total itemized deductions if your itemized deductions were limited in the past due to the amount of your adjusted gross income. The old rule that limited the total itemized deductions for certain higher-income individuals has been suspended.
- 11. Estate and gift tax exemptions • The new law doubles the estate and gift tax exemption to $10 million for gifts made and decedents passing after Dec. 31, 2017 and before Jan. 1, 2026. • The $10 million exemption is indexed for inflation. The exemption is $11.18 million for 2018. • Regulations will be provided at a future date to reconcile differences in the exemptions at the time of a decedent’s death and gifts made prior to death.
- 12. 529 plans 529 plan distributions could be utilized tax free for qualified higher educational expenses, which included tuition, fees, books, supplies, and required equipment. 529 plans now allow for up to $10,000 in annual distributions for tuition of public, private, or religious elementary and secondary schools.
- 13. IRA contributions that are re-characterized The tax law repeals the ability to re-characterize conversion contributions to Roth IRAs. This prohibits taxpayers from unwinding Roth conversions. The new law still allows taxpayers to re-characterize contributions to a Roth IRA as contributions to a traditional IRA presuming the conversion happens prior to the due date of the individual’s income tax return. This provision is in effect as of Jan. 1, 2018.
- 14. Deduction for qualified business income (QBI) Effective Jan. 1, 2018 through Dec. 31, 2025, there is a deduction for 20% of QBI from a partnership, S corporation, or sole proprietorship. There are a number of limitations and restrictions outlined within the calculation of QBI. The taxable income threshold is $157,500 (single) and $315,000 (joint). Once exceeded, the limitation on specified service businesses and the wage limit will be phased in.
- 15. State and local tax deduction • Under the new law, there is an overall limit of $10,000 for property taxes and state and local income taxes (or sales tax in lieu of income taxes). • Property tax on investment real property remains deductible as an itemized deduction.
- 16. Home mortgage interest deduction The new law reduces the ceiling of acquisition indebtedness to $750,000 from 1 million, unless the indebtedness was incurred before Dec.15, 2017, where the limitation is still $1 million. The deduction for home equity indebtedness is suspended from Jan. 1, 2018 to Dec. 31, 2025.
- 17. Reporting Health Care Coverage • You must continue to report coverage, qualify for an exemption, or report an individual shared responsibility payment for tax year 2018.
- 18. Charitable donations The increased AGI threshold and denial for deduction for stadium seating rights are effective as of Jan. 1, 2018. The new tax law made the following changes: The AGI threshold for cash contributions to public charities is increased to 60%. No charitable deduction is allowed for payments made to college institutions for the right to purchase tickets or seats at athletic events.
- 19. Medical expenses The new law reduces the AGI limitation to 7.5% for both regular tax and AMT purposes for 2017 and 2018.
- 20. Moving expenses • The tax law suspends the deductibility of moving expenses. • The provisions related to members of the Armed Forces remain. • This suspension of the moving deduction is applicable from Jan. 1, 2018 to Dec. 31, 2025.
- 21. Personal casualty and theft losses • The new tax law limits the deduction to only losses that are attributed to federally-declared disasters. This revision is effective from Jan. 1, 2018 to Dec. 31, 2025.
- 22. Wagering losses The new provision clarifies that other expenses related to the gambling are also subject to the same limitation, including otherwise deductible expenses traveling to and from a casino. This provision applies from Jan. 1, 2018 to Dec. 31, 2025.
- 23. Discharge of certain student loan debt The new law includes discharges on account of death or disability in the allowable reasons for an exclusion. This provision applies to discharges of loans after Dec. 31, 2017.
- 24. Qualified bicycle commuting reimbursement • Old Law: A reimbursement of $20/month could be excluded from an employee’s gross income for qualifying bicycle commuting. • New Law: This provision has been repealed effective Jan. 1, 2018 through Dec. 31, 2025. If an employer continues to provide this benefit, it is taxable to the employee.
- 25. Miscellaneous itemized deductions The new law suspends all deductions that were subject to the 2% AGI limitation. This provision is in effect from Jan. 1, 2018 through Dec. 31, 2025.
- 26. Deduction for alimony payments and inclusion of alimony payments as income • The new law repeals the deduction for alimony paid and the inclusion of alimony received for divorce decrees executed after Dec. 31, 2018.
- 27. Child tax credit The new tax law increases the credit to $2,000 per qualifying child and raises the threshold at which the credit is phased out. The maximum refundable credit is capped at $1,400 per qualifying child. In order to qualify for this credit, the taxpayer must include a valid Social Security number (SSN) for each child the credit is being claimed on. The SSN must be issued prior to the filing of the return to be eligible.
- 28. Credit for other dependents A new credit of up to $500 is available for each of your qualifying dependents other than children who can be claimed for the child tax credit. The qualifying dependent must be a U.S. citizen, U.S. national, or U.S. resident alien.
- 29. Social security number required for child tax credit Your child must have a Social Security Number Children with an ITIN can’t be claimed for either credit.
- 30. Family tax credit The new tax law allows for a $500 nonrefundable credit for qualifying dependents that are not qualifying children of the taxpayer. The requirements for a valid SSN for the child tax credit is not in effect for the family tax credit.
- 31. Thank you • Have any questions or concerns? • Want to Speak more about tax planning? • Call us 813-344-1784 • Email us info@cswestcpas.com • Want a copy of the slide?
Notas do Editor
- For 2018, most tax rates have been reduced. This means most people will pay less tax starting this year. The 2018 tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. In addition, for 2018, the tax rates and brackets for the unearned income of a child have changed and are no longer affected by the tax situation of the child’s parents. The new tax rates applicable to a child’s unearned income of more than $2,550 are 24%, 35%, and 37%. In addition to lowering the tax rates, some of the changes in the law that affect you and your family include increasing the standard deduction, suspending personal exemptions, increasing the child tax credit, and limiting or discontinuing certain deductions.
- THIS MEANS THAT…you need to pay most of your tax during the year, as the income is earned or received. If you don’t, you may owe an estimated tax penalty when you file. The amount of income tax your employer withholds from your regular pay depends on two things: The amount you earn. The information you give your employer on Form W–4, Employee’s Withholding Allowance Certificate. The IRS also modified Form W-4, Employee’s Withholding Allowance Certificate, which is the IRS form that employees provide to their employers, so that the employer may determine the amount of federal income tax to withhold from the employees’ paychecks.
- THIS MEANS THAT…far fewer taxpayers will pay the AMT.
- THIS MEANS THAT…you will not be able to reduce the income that is subject to tax by the exemption amount for each person included on your tax return as you have in previous years. However, changes to the standard deduction amount and Child Tax Credit may offset at least part of this change for most families and, in some cases, may result in a larger refund.
- The standard deduction is a dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status. The standard deduction reduces the income subject to tax. The Tax Cuts and Jobs Act nearly doubled standard deductions. When you take the standard deduction, you can’t itemize deductions for mortgage interest, state taxes and charitable deductions on Schedule A, Itemized Deductions. THIS MEANS THAT… Many taxpayers will no longer itemize their deductions and have a simpler time in filing their taxes. Now, simpler doesn’t mean your taxes will be easier, especially if you do not understand the new changes in the first place.
- THIS MEANS THAT…Many individuals who formerly itemized may now find it more beneficial to take the standard deduction. Check your 2017 itemized deductions to make sure you understand what these changes mean to your tax situation for 2018. For married filing separate taxpayers, if one spouse elects to itemize, the other spouse is also required to itemize. That’s why it is important that you consider what these changes mean for you and your family.
- THIS MEANS THAT…if you do itemize… your itemized deductions are no longer limited if your adjusted gross income is over a certain amount.
- You can contribute more to your Achieving a Better Life Experience (ABLE) account.
- You can no longer recharacterize a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans.
- Certain trades or businesses are disallowed based on a taxable income threshold. These specified service businesses include health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services and “any trade or business where the principal asset is the reputation or skill of one of more of its employees.”
- Under the old law, Property taxes and state and local taxes that were not otherwise deducted on Schedules C, E, or F were deductible as an itemized deduction. No deduction is allowed for foreign real property taxes. Property taxes associated with carrying on a trade or business are fully deductible. THIS MEANS THAT…if you do itemize… you can deduct state and local income, sales, and property taxes but only up to $10,000 ($5,000 if Married Filing Separate)
- With home equity interest no longer treated as “qualified residence interest” under Sec. 163(h), discuss with clients what they used the proceeds for and apply the tracing rules of Reg. Sec. 1.163-8T and Notice 89-35 to see if the interest falls into another deductible category. If the equity debt is secured by the home and was used to make improvements to the home, it is acquisition debt and still deductible within the acquisition debt limitation. THIS MEANS THAT…if you do itemize… that interest paid on most home equity loans is not deductible unless the loan proceeds were used to buy, build, or substantially improve your main home or second home.
- THIS MEANS THAT... For tax year 2018, the IRS will not consider a return complete and accurate if you do not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment on the tax return. You remain obligated to follow the law and pay what you may owe at the point of filing.
- THIS MEANS THAT…if you do itemize …you may be able to deduct more of your charitable cash contributions this year. No charitable deduction shall be allowed for any amount paid to an institution of higher education in exchange for which the payor receives the right to purchase tickets or seating at an athletic event.
- Tax year 2018 is the last year for the 7.5% AGI threshold; it’s 10% for 2019 and later. THIS MEANS THAT…if you do itemize…you can deduct the part of your eligible medical and dental expenses that is more than 7.5 percent of your 2018 adjusted gross income.
- This suspension does not apply to members of the U.S. Armed Forces on active duty who move pursuant to a military order related to a permanent change of station. Also, employers will include moving expense reimbursements as taxable income in the employees’ wages because the new law suspends the former exclusion from income for qualified moving expense reimbursements from an employer. THIS MEANS THAT… unless you are a member of the U.S. military on active duty, you cannot deduct moving expenses and amounts reimbursed by an employer will be taxable income.
- Net personal casualty and theft losses are deductible only to the extent they’re attributable to a federally declared disaster. The loss must still exceed $100 per casualty and the net total loss must exceed 10 percent of your AGI. In addition, you can still elect to deduct the casualty loss in the tax year immediately preceding the tax year in which you incurred the disaster loss. THIS MEANS THAT…if you do itemize…your personal casualty and theft losses must be attributed to a federally declared disaster.
- Gambling losses were deductible as itemized deductions to the extent of gambling winnings.
- A taxpayer did not include in gross income amounts from the forgiveness of certain student loans, contingent upon him or her working in certain professions for a defined period of time.
- Taxpayers were able to deduct as a miscellaneous itemized deduction subject to a 2% of AGI limitation on a number of expenses, including (but not limited to) tax preparation fees, appraisal costs for charitable contributions, hobby expenses, investment fees, unreimbursed employee business expenses, the loss on traditional or Roth IRAs upon full distribution, repayments of previously taxed income, and safe deposit box rental fees. THIS MEANS THAT…if you do itemize…if your miscellaneous itemized deductions previously needed to exceed 2% of your adjusted gross income, they are no longer deductible.
- Old Law: Alimony paid was deductible by the payor spouse. Alimony received by a spouse was included in gross income. WHAT’S NEXT FOR TAX YEAR 2019? … divorce or separation agreements executed or modified after Dec 31, 2018 providing alimony will have different tax consequences. The alimony payments will not be deductible for the spouse who makes alimony payments and they will not be included in the income of the receiving spouse.
- With the disallowance of personal and dependent exemptions, many clients may be concerned that their tax bills will increase. This updated child tax credit and new family tax credit are designed to help reduce the tax burden related to the other changes. In addition, the income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly. THIS MEANS THAT… more families with children under 17 qualify for the larger credit.
- THIS MEANS THAT…you may be able to claim this credit if you have children age 17 or over, including college students, children with ITINs, or or other older relatives in your household.
- If your dependent child lived with you in the United States and has an ITIN, but not an SSN, issued by the due date of your 2018 return (including extensions), you may be able to claim the new Credit for Other Dependents for that child. Spouses and dependents residing outside the United States who use Individual Taxpayer Identification Numbers - a tax processing number issued by the IRS – should review the information on IRS.gov/ITIN to determine whether they need to renew an ITIN before filing a tax return next year.
- No law existed before
- Hey guys, thank you for allowing me to give you this update, email us if you want a copy of this slide, email us if you want to speak further about tax planning