2018 Tax Reform Notice for Individual Returns

To our wonderful clients:

            As you know, there have been a lot of changes in tax laws and regulations with the Tax Cuts and Jobs Act, signed into law on December 22, 2017. This letter is to give you more information on those changes—we will do our best to help you understand and prepare for these changes and how they will affect you.

Tax rates are reduced: The top rate is reduced from 39.6% to 37%. Lower rates are also reduced. You can find the updated tax table at: https://www.irs.gov/pub/irs-pdf/n1036.pdf

Exemptions and the child tax credit: The deduction for personal exemptions is eliminated. The child tax credit has been increased to $2,000 (from $1,000) for qualifying children under the age of 17 to help with the loss of personal exemptions. For children 17 and older, the credit is $500.

Standard Deduction: The standard deduction is doubled, which means fewer taxpayers would benefit from itemizing deductions. The new standard deductions are: $12,000 for single, $18,000 for heads of household, and $24,000 for married filing jointly.

Itemized deductions: All itemized deductions for all state and local taxes are capped at $10,000. This includes property taxes. The mortgage interest deduction has been reduced from $1,000,000 to $750,000 for loans made after December 15, 2017. Loans before that date are grandfathered in. Interest on home equity borrowing is no longer deductible. The allowance for medical expense deductions is now 7.5%, down from 10% of your adjusted gross income. Miscellaneous and other deductions, including employee business expenses, investment adviser fees, union dues and tax preparation fees (fees paid to us), are no longer deductible. Personal casualty losses (theft, etc.) are no longer allowed unless they happened in a federally declared disaster area.

Alimony: Alimony is not a deductible expense for the payer, nor is it taxable for the payee, after December 31, 2018. There is no change to lawful agreements signed before Jan 1, 2019.

Moving Expenses: These expenses are no longer deductible, and any reimbursement for moving expenses from an employer will be taxable to the employee beginning in 2018.

AMT: Alternative minimum tax (AMT) exemption has been temporarily increased for years 2018-2025, meaning fewer people will be subject to AMT.

Education: Funds in the 529 savings plan can now be used to pay for private school tuition for grades K-12. The above-the-line deduction for college tuition expenses was renewed, but only for 2017. However, the American Opportunity and the Lifetime Learning credits will continue to be available.

Roth IRA Conversions: Once the conversion from a traditional IRA to a Roth IRA has been done, it cannot be undone.

As always, give us a call or email with any questions or suggestions for planning for your 2018 tax return.