What the new Tax Reform Bill means for your tax return

There have been a lot of posts online and news articles about how the new tax reform bill will impact your personal taxes. The new rules go into effect on January 1, 2018 and will impact your 2018 tax return filing in the spring of 2019.

There are still seven tax brackets, but those tax rates and earnings thresholds have changed

Income Tax Rate Income Levels for Those Filing As:
Current Tax Bill Single Married-Joint
10% 10% $0-$9,525 $0-$19,050
15% 12% $9,525-$38,700 $19,050-$77,400
25% 22% $38,700-$82,500 $77,400-$165,000
28% 24% $82,500-$157,500 $165,000-$315,000
33% 32% $157,500-$200,000 $315,000-$400,000
33%-35% 35% $200,000-$500,000 $400,000-$600,000
39.6% 37% $500,000+ $600,000+

There will be many changes to the itemized deductions that are reported on Schedule A,

We will be reverting back to the lower AGI threshold for medical expenses. The AGI threshold will drop from 10% to 7.5%, allowing more of your medical deductions to be used as part of your itemized deduction total.

Taxpayers must choose if they are going to deduct property taxes, state and local income taxes or sales tax. Under the old rules, taxpayers could elect to deduct all three forms of taxes paid, this deduction was unlimited. This deduction will now be capped at $10,000.

Mortgage interest will still be deductible but home equity line interest will no longer be deductible. Deductible mortgage interest will be for debt of up to $750,000, down from $1 Million.

Charitable cash contributions limitations have been raised from 50% of your AGI to 60% of your AGI.

Standard deduction amounts will double for tax year 2018, Single filers will increase from $6,350 to $12,000, married filing joint filers will increase from $12,700 to $24,000. This means that your allowable itemized deductions would have to exceed the new standard to benefit from itemizing. Most taxpayers will elect to take the standard deduction.

Personal exemptions have been removed, meaning that you will no longer receive the additional $4,050 per person listed on your tax return. This change will reduce the tax savings benefits that some taxpayers would have felt under the new tax provisions.

The child tax credit has been increased from $1,000 per child to $2,000 per child and the income thresholds for single parents has increased to $200,000 and married filing joint parents to $400,000. This will allow more families to receive this benefit on their tax return.

There is now a $500 credit for other qualified dependents on your tax return, such as children over the age of 17, elderly parents or disabled dependents.

The student loan interest deduction will still be available for those paying down their student loans. You may be able to deduct up to $2,500 of the interests paid as an adjustment to your income as long as your AGI is below the income threshold of $80,000 for individuals and $160,000 for married filing joint filers.

Educators will still be able to deduct $250 of their classroom expenses on page 1 of Form 1040. But the additional amounts paid over the $250, will no longer flow through to the Schedule A “Miscellaneous Deductions” as part of your unreimbursed employee deductions. Employees who have unreimbursed employee expenses may no longer be able to write off those costs on the Schedule A.

Other Miscellaneous Deductions subject to the 2% AGI Floor have been suspended until tax year 2026. This will affect people who claim unreimbursed employee expenses, such as travel costs, home office and other business-related expenses are related to their W2 income.

People work in the entertainment industry may also see a reduction in the amount of business expenses that they can deduct on the Schedule A under that 2% floor.

Other deductions that were lost due to the suspension of Schedule A Miscellaneous Deductions are Union dues, tax preparer fees and other related business expenses. Gambling losses will also be limited under this new provision.

Moving expenses will no longer be deductible starting tax year 2018, if you are planning to move for work – prepay those expenses in tax year 2017 so that they can be deductible on your 2017 income tax return.

Alimony for new divorcees in 2018, will no longer be tax deductible for the person paying alimony and the alimony recipient will no longer have to claim that as taxable income. For divorcees that currently are paying or receiving alimony, the rules stay the same.

Flow through income from your business, Partnerships, LLC’s, S-corps will now have a 20% deduction against the flow through income. There is a formula to calculate how much of your income, wages and other business related items would be used to calculate the deduction. We will address this in a later blog as the IRS defines the calcations and thresholds.

The ACA individual mandate (ObamaCare Penalty), will no longer apply starting tax years after December 31, 2018.

Home owners will still be able to use the Primary Residence Exclusion when selling their primary residence as long as they qualify using the two out of the last five years “look back”.

Estate tax exclusion has been raised for the current amount of $5.49 Million to $10.98 Million. This change will exclude most taxpayers from paying this tax.

The corporate tax rate has been reduced from 35% to 21% for C-corp related profits.

To read more on the new tax reform visit

http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-%20466.pdf

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