2018 Tax Reform (TCJA)
The new tax law signed at the end of 2017 has plusses and minuses for taxpayers. Thus, some taxpayers will actually see their taxes go up even though the tax rates have decreased. Here is a summary of the changes that may affect you.
– The highest tax rate for an individual has decreased from 39% to 37%. The tax rates for each of the tax brackets have decreased.
– The alternative minimum tax (AMT) is still with us but the exemptions and related phase out thresholds have increased. Thus fewer taxpayers will be subject to AMT.
– The standard deduction has increased from $13,000 for a married couple to $24,000, for a single from $6,350 to $12,000 meaning fewer taxpayers will be itemizing their federal deductions. However, there is not a change for itemized deductions in California so itemized deduction will still have to be compiled to see if they can be used for Federal or state tax.
– The child tax credit will be increased to $2,000 per child and the phaseout range has increased.
– Beginning in 2019, there is no longer a penalty if you do not have health insurance.
– There is a new 20% deduction on qualified business income for “pass through” businesses (sole proprietors, partnerships, LLCs and S corporations). This does not apply to certain businesses and for others the deduction can be limited based on the amount of W-2 wages paid.
– For businesses, bonus depreciation has increased to 100% from 50%. The amount subject to section 179 expensing has also been increased.
– The estate tax exemption was raised from $5,490,000 per person to $11,180,000 per person.
– Personal exemptions will no longer be a deductible item.
– For divorce agreements executed January 1, 2019 and after, alimony will no longer be deductible to the payor and will not be taxable to the recipient.
– The moving expense deduction is eliminated. Related to this, reimbursements for moving expenses from your employer will now be taxable.
– State and local income taxes will be limited to $10,000. This means when state income tax, real estate taxes and other state & local taxes exceed $10,000, they will not be deductible.
– Miscellaneous itemized deductions are eliminated. These include a variety of deductions. Some of the ones that will affect many taxpayers are investment fees and unreimbursed employee expenses.
– If a child is subject to the “Kiddie Tax”, the child must file their own tax return as the tax can no longer be calculated as part of the parents’.
– Interest expense deduction on a home purchased after December 15, 2017 is limited to a loan of $750,000. The interest on the loan amount over $750,000 is not deductible.
– Interest on home equity debt is no longer deductible for non home improvement purposes. Previously the interest was deductible on the first $100,000 of home equity debt no matter what it was used for as long as it was secured by the home. Now, to be deductible, the loan must be used for a tax-deductible purpose such as home improvements or business expenses.