2018 Tax Law Changes

Tax Law Changes : Tax-Year 2017 to 2018

         Standard deduction and personal exemption
While it's being sold as a tax cut, the higher standard deduction really falls more under the category of a simplification.
Yes, the standard deduction has roughly doubled for all filers, but the valuable personal exemption has been eliminated. For example, a single filer would have been entitled to a $6,500 standard deduction and a $4,150 personal exemption in 2018, for a total of $10,650 in income exclusions. Under the new tax plan, they would just get a $12,000 standard deduction. Is it better? Yes. But it's not really "doubled."
Having said that, here's a comparison between the standard deductions of the new and old tax laws.


Tax Filing Status

Previous Standard Deduction (Set to take effect in 2018)

New Standard Deduction

Single

$6,500

$12,000

Married Filing Jointly

$13,000

$24,000

Married Filing Separately

$6,500

$12,000

Head of Household

$9,350

$18,000

1. Personal exemptions
The biggest move that the tax reform bill made was to take away personal exemptions, which generally allowed taxpayers to reduce their taxable income by $4,050 per person. Many policymakers argued that the personal exemption was essentially merged into the standard deduction, but the rise in the standard deduction under tax reform wasn't large enough to compensate for the loss of personal exemptions for some taxpayers.
2. Home equity loan interest
Mortgage interest on purchase loans is still deductible under tax reform up to $750,000, but the deduction for interest on home equity loans becomes nondeductible once 2018 begins. Unlike with purchase loans, there's no grandfathering provision for existing home equity loans, so for those for whom the deduction is important, looking at potentially repaying those loans sooner than expected might be worth considering.
3. Moving expenses
Taxpayers won't be allowed to deduct moving expenses, as they can for 2017. To be deductible, a move had to be motivated by a job change, with the new job being at least 50 miles further from where you used to live than your old job was. The best thing about the moving expense deduction was that you didn't have to itemize deductions to get it, but it will be gone for 2018 and beyond.
4. Casualty and theft losses except in disaster areas
Casualty losses under old law were eligible as itemized deductions to the extent that they exceeded $100 plus 10% of your adjusted gross income. Events included not only natural disasters but also fires, robberies, and other qualifying occurrences. The new law now preserves the deduction only for disasters for which a presidential disaster area declaration was made.
5. Job expenses
Money you spent on certain job costs, such as license and regulatory fees, required medical tests, and unreimbursed continuing education, was available as an itemized deduction to the extent that it and other miscellaneous deductions exceeded 2% of your adjusted gross income. Now, you won't be able to deduct these costs anymore, making it even more worth your while to try to get your employer to pay them on your behalf.
6. Subsidized parking and transit reimbursement
Employees were eligible under old tax law to get up to $255 per month from their employers to subsidize parking costs or transit passes. Workers didn't have to include those perks in income, and companies could deduct it. Now, the corporate deduction for that cost will go away, and that could lead some businesses to stop offering those programs to workers.
7. Tax preparation fees
Just like job expenses, costs to have your taxes done were also available as miscellaneous itemized deductions. That won't be the case anymore, and any costs for tax preparation will be nondeductible in 2018.
8. Other miscellaneous deductions
A host of other miscellaneous deductions subject to the 2% AGI limitation will all be gone in 2018. These include investment fees and expenses, convenience fees for using a credit or debit card to pay your taxes, and trustee fees for an IRA if paid separately.

 

Filing Status

Rates

Single

Married Joint

Married Separate

Head of Household

10%

Up to $9,525

Up to $19,050

Up to $9,525

Up to $13,600

12%

$9,525 to
$38,700

$19,050 to
$77,400

$9,525 to
$38,700

$13,600 to
$51,800

22%

$38,700 to
$82,500

$77,400 to
$165,000

$38,700 to
$82,500

$51,800 to
$82,500

24%

$82,500 to
$157,500

$165,000 to
$315,000

$82,500 to
$157,500

$82,500 to
$157,500

32%

$157,500 to
$200,000

$315,000 to
$400,000

$157,500 to
$200,000

$157,500 to
$200,000

35%

$200,000 to
$500,000

$400,000 to
$600,000

$200,000 to
$300,000

$200,000 to
$500,000

37%

Over $500,000

Over $600,000

Over $300,000

Over $500,000

  • The standard deduction is increased to $24,000 for married taxpayers filing jointly; $18,000 for single filers with at least one qualifying child (Head of Household filers); and $12,000 for single filers and includes enhancements for the elderly and the blind.
    • Personal exemptions are repealed and merged in with the higher standard deduction.
    • The Child/Dependent Tax Credit will be $2,000 with $1,400 refundable. Modified income limits will make the credit available to more families and a $500
  • The Kiddie tax is simplified by applying the trust and estate rates (reflected below) to the unearned income of a child.
  • The capital gain and dividend rates are maintained at 20%, plus the 3.8% surtax, where applicable.
  • The act retains a modified Individual Alternative Minimum Tax (AMT) as of 2018 and provides for increased exemptions and higher phase out limitations. The limits are indexed for inflation. The new law will change the impact of AMT and should reduce the number of affected taxpayers.
  • There are significant changes to itemized deductions. The "Pease" limitation, which previously limited up to 80% of most itemized deductions, has been repealed. Instead, most itemized deductions are either eliminated or modified, such as:
    • The deduction for non-business state and local income, sales and property taxes will be limited to $10,000 in aggregate ($5,000 for married taxpayers filing separately). This provision potentially harms taxpayers living in high income and property tax states.
  • The deduction for medical expenses has been retained and will be enhanced. The act lowers the threshold for the deduction to 7.5% from 10% of adjusted gross income for tax years 2017 and 2018.
  • The act repeals all miscellaneous itemized deductions that were previously subject to the 2% floor. Miscellaneous deductions included investment fees, tax preparation expenses and unreimbursed employee business expenses. However, the deduction for investment interest expense remains unchanged.
  • The deduction for personal casualty and theft losses is repealed, except for losses resulting from federally declared disasters.
  • The adjusted gross income limit on cash contributions is increased from 50% to 60%.
  • 529 Savings Plans can be withdrawn tax-free if used for higher education expenses. The act now allows up to $10,000 per year to be used for elementary and high school tuition and funds to be used for private and religious schools.
  • The deduction for mortgage interest is subject to the following rules:
    • Interest on acquisition debt currently in existence can be deducted under current rules.
    • The $1 million debt limit is reduced to $750,000 for debt incurred after December 15, 2017, and will only include mortgage interest deduction on a principal residence and second residence.
    • Home equity interest will be nondeductible.
  • The final act includes a repeal of the Shared Responsibility Payment (Individual Mandate) under the Affordable Care Act after 2018.
  • While the above-the-line educator costs is not repealed, the act eliminates many tax credits and income exclusions, including:
    • Moving expenses other than those in Armed Forces.
    • Deduction or alimony payments effective for any divorce decree or separation agreement executed or modified after 2018.
    • Exclusion for employee achievement awards.
    • Elimination of the Deduction for Domestic Production Activities.
    • Credit for clinical testing expenses for certain drugs for rare diseases or conditions is reduced to 25%.
    • Rehabilitation credit is not completely repealed, but limited to 20% for certified historic structures and repealed for pre-1936 non-historic structures.
    • Disabled Access Credit.
    • Retain and simplified the Earned Income Tax Credit to improve efficiency

Potential Steps to take as a result
Charitable gifts could be worth more in 2017 instead of 2018 due to the change in the rates.
Consider paying state & local taxes but not the point of state tax refunds, since refunds would will likely be taxable.
Consider Pay off sizable medical expenses before the end of the year.
Consider prepay student loan interest.
Educators Consider paying classroom-related expenses early.
Consider accelerate other expenses that would qualify as itemized deductions.
Get your retirement plan contributions done.
Going beyond tax-reform-related moves, if you're part of a 401K or other employer sponsored retirement plan, making sure you get as much money as possible into your account can cut your taxes. The general maximum you can set aside for most plans is up to $18,000 in wages, with those who are 50 or older getting to save an additional $6,000 if they choose. Unlike IRAs, 401(k) contributions must be completed by Dec. 31, so talk to your HR department to see if you can get more money taken out of your end-of-year paychecks in order to take maximum advantage.
Get your portfolio losers sold.
Losses on investments are deductible against gains, reducing the amount of tax you'll pay on winning investments that you've sold during the year. To claim your loss, you need to sell the losing stock by Dec. 31, and then make sure not to buy it back within 30 days. Even if you don't have gains on other investments, up to $3,000 in capital losses is available for offsetting other types of income.
Arrange to have income deferred into next year.
Most people can't control when they get their paychecks, but some entrepreneurs and self-employed workers have the ability to time their income to some extent. If you think that tax rates will be lower for you in 2018, then deferring income until after 2017 can be a smart move. How exactly to accomplish this depends on the accounting method that you use in your business and a host of other issues, so make sure to consult your tax professional to decide exactly how to implement an income-deferral strategy.
Make sure you're not going to owe a tax penalty.
Last but not least, it's important to estimate your taxes and make sure that you've had enough taxes withheld to avoid penalties. The general rule is that if you've had at least 100% of your prior-year tax liability withheld, or 90% of what you'll end up owing this year, you won't owe a penalty. But other requirements apply to high-income taxpayers. If you're short, then boosting your income tax withholding from your paycheck can be the best way to remedy the situation.
Finish the year tax-strong
No one wants to think about taxes during the holiday season, but making these moves before 2018 begins is crucial to ensure you won't run into nasty surprises. Keep your eyes on Washington to see what emerges on the tax-reform front, but be prepared to take action -- even if there's no final resolution -- to cover your bases.
The $6,318 tax bonus millions of Americans completely overlook
Taxes can be confusing and downright miserable. But a handful of "tax tricks" could help millions of Americans save thousands of dollars. That's free money you could be leaving on the table. For example: the IRS believes that a full 20% of eligible Americans miss out on a tax break worth up to $6,318... each year!

Beginning on January 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 53.5 cents per mile for business miles driven, down from 54 cents in 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents in 2016
  • 14 cents per mile driven in service of charitable organizations, unchanged from 2016