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The 2018 Tax Reform and Its Impact on Individual Taxpayers

January 29, 2018 | Posted by admin | Share:

At the end of 2017, President Trump signed the Tax Cuts and Jobs Act, one of the biggest tax reform in over 30 years. With this new bill, every taxpayer will see significant changes to their 2018 individual tax return. To better prepare yourself for next year’s filing season, please take the time to review some of the biggest changes that may impact you:

Tax rate changes:

For individuals, there will only be 7 tax brackets, with the maximum individual rate reduced to 37%.

Be sure to check with your tax preparer to see if this will benefit you or cause your tax liability to increase.

Standard deduction increases:

Standard deduction will approximately double in size. However, the new tax law has removed the personal exemption deductions.

  New Law Old Law
Married Filing Joint:                    $24,000                    $13,000         
Head of Household:          $18,000 $9,550
Single (and MFS):           $12,000 $6,350

Increased Child Tax Credit and new Dependent Credit:

The credit is increased for each child to $2,000 (up to $1,400 of which is refundable for each child) and each non-child dependent can now receive a new credit of $500. 

The phaseout threshold for these credits dramatically increased. Married taxpayers filing a joint return can claim the full credits if their AGI is $400,000 or less ($200,000 for all others). The credit is fully phased out for married taxpayers filing joint when their AGI reaches $440,000 ($240,000 for all others). In all likelihood, you will be able to claim these credits in 2018 and beyond. And we can help!

Disappearing deductions: Beginning in 2018, there will be major changes to certain deductions:

  • State income tax and property taxes are both limited to only $10,000 per year in total.
  • Moving expenses has been permanently repealed.
  • Miscellaneous itemized deductions such as unreimbursed employee business expenses, entertainment, union dues, uniforms, tax preparation fees, and investment fees, etc. has been permanently repealed.
  • Mortgage interest deduction is now limited to $750,00 of acquisition debt for new homes purchased. However, existing mortgages incurred before 12/15/17 will be grandfathered in and will continue to use the $1,000,000 limitation ($500,000 for MFJ or MFS).
  • Mortgage interest paid on equity debt (this is no longer deductible for any taxpayers.
  • Casualty losses are no longer deductible, except in the case of a presidentially-declared disaster.

There are some new benefits for individuals:

  • The medical expense AGI threshold will temporality drop to 7.5% of AGI for 2017 and 2018. The threshold returns to 10% after 2018.
  • The AMT threshold is increased, so fewer middle-income taxpayers will be subject to AMT.
  • The estate tax exclusion has nearly doubled, to $10 million.
  • The annual gift tax exclusion remains the same ($14,000), but maximum rate on gifts is 35%.
  • The AGI limit for charitable contributions increased from 50% to 60%.

These are the major changes that will be made to your individual tax return. Because these reforms are not always that simple, please contact us so that we can go over your tax situation and better plan for your next tax filing!

Contact us here.