"The Tax Cuts & Jobs Act” is the biggest federal tax law change in over 30 years. As a result, people are understandably apprehensive and some of us are even a little confused. Before getting started, let’s review some terms to remember:
AGI = Adjusted Gross Income
AMT = Alternative Minimum Tax
HOH = Head of Household
MFJ = Married Filing Joint
MFS = Married Filing Single
NOLs = Net Operating Losses
PSCs = Personal Service Corporations
QW = Qualified Widower
SMFS = Single or Married Filing Separate
Tax Provisions that were eliminated:
- Personal exemption deductions are suspended.
- Phase-out of itemized deductions based on adjusted gross income (AGI) is suspended.
- Itemized deduction for home equity interest, except acquisition debt, is no longer allowed.
- Itemized deduction for miscellaneous itemized deductions (e.g. investment expenses, unreimbursed employee business expenses, tax preparation fees), subject to the 2% floor are no longer allowed.
- Personal casualty loss and theft deductions are eliminated unless the loss is incurred in a federally declared disaster area.
- The moving expense deduction and income exclusion is allowed only to members of the Armed Forces and their spouses or dependents.
- No charitable contribution deduction is allowed for a payment to a higher educational institution in exchange for the right to purchase tickets or seating at an athletic event.
- Alimony is not deductible by the payer nor included in income by the recipient for agreements entered after December 31, 2018.
- Effective 2019, the shared responsibility payment under the Affordable Care Act (Obama Care) for not having minimum essential health insurance coverage is zero.
- The threshold for deducting medical expenses is 7.5% of AGI for all taxpayers for 2017 and 2018.
- The home mortgage interest deduction debt limit is reduced to $750,000 ($375,000 MFS) with certain exceptions.
- The itemized deduction for state and local taxes is limited to $10,000 ($5,000 MFS). This limit includes both state and local income taxes and real property taxes.
The 2018 standard deduction is:
- SMFS is $12,000
- MFJ or QW is $24,000
- HOH is $18,000
- MFJ, QW or MFS is $1,300
- Single or HOH is $1,600
- The Child Tax Credit increased to $2,000 per qualifying child and the phase-out threshold increased.
- There is a new Family Tax Credit of up to $500 for dependents who are not a qualifying child for purposes of the Child Tax Credit
- For the Charitable contribution deduction, the percentage of AGI limitation for cash to public charities and certain other organizations increased from 50% to 60%.
- The estate and gift tax exemption amount increased to $11,180,000.
- The long-term capital gain and qualified dividend income maximum tax brackets no longer follow the tax brackets for regular income tax purposes.
- The parent’s rate is no longer used to calculate the kiddie tax. Instead, taxable income attributable to net unearned income is taxed at the estates and trusts tax rates for both ordinary income and net capital gains.
Tax provisions that were eliminated:
- There is no longer a separate tax rate for personal service corporations (PSCs).
- The two-year carry-back provision for net operating losses (NOLs) has been eliminated except for certain losses.
- There is no meals and entertainment deduction for membership dues or activities generally considered to be entertainment, amusement or recreation.
- AMT for C corporations has been repealed.
- All taxable income of a C corporation is taxed at a flat rate of 21%.
- The 70% dividends received deduction is reduced to 50% and the 80% dividends received deduction is reduced to 65%.
- The net operating loss deduction (NOL) is limited to 80% of taxable income.
- An individual taxpayer generally may deduct 20% of qualified business income from a partnership, S corporation or sole proprietorship. For partnership or S corporation, the deduction applies at the partner or shareholder level. The deduction is disallowed for specified service trades or businesses when taxable income exceeds the threshold amount.
- Special (bonus) depreciation is increased to 100% of property acquired and placed in service after September 27, 2017, with a new phase-down schedule for years after 2022. The new law allows special depreciation for both new and used property.
- The Section 179 deduction is increased to $1,000,000 and the phase-out threshold amount increased to 2,500,000.
- The new law expanded the definition of Section 179 property to include certain property used predominantly to furnish lodging.
- The depreciation limitations for luxury automobiles have been increased.
THESE ARE THE FACTS AND FIGURES, PLEASE CONSULT WITH YOUR TAX ATTORNEY OF PREPARER FOR ADVICE REGARDING THE TAX EFFECTS OF THE “TAX CUTS AND JOBS ACT” ON YOUR PERSONAL FINANCIAL PORTFOLIO!