Below is a brief list of changes to the tax law that may or may not impact you. This list is not complete. Some tax changes are permanent, some are not, and many have exceptions. Your specific situation must be reviewed. We recommend every taxpayer invest in our tax planning services for 2018 and forward. There may be new tax strategies that will save you money, or deductions for which you no longer qualify for making your taxes increase. Our Tax Planning services are $150 per hour with a one hour minimum. Most individual tax plans can be completed in under 2 hours. Business planning will vary based on the size, type, industry, and needs of the business. A Tax Professional from AFSG will develop your personalized tax plan and review it with you, answering any questions you may have.
▪ TAX RATES, Beginning 2018…
o The new Individual tax rates are 10%, 12%, 22%, 24%, 32%, 35%, & 37%
o The new Estates & Trusts tax rates are 10%, 24%, 35%, & 37%
o The new Corporate tax is a flat tax of 21%
o The Capital Gains tax rate is 10%, 15%, or 20% (the 25% tax on Sect 1250 and 28% tax on collectibles remains)
o The Kiddie tax is now based on Estates & Trusts tax rates
INDIVIDUAL TAX LAW CHANGES
▪ STANDARD DEDUCTION & EXEMPTIONS, Beginning 2018…
o The Standard Deduction for Single filers is $12,000 (+$1,550 if blind or over age 65)
o The Standard Deduction for Head of Household is $18,000 (+$1,550 if blind or over age 65)
o The Standard Deduction for Married Filing Joint is $24,000 (+$1,300 if blind or over age 65)
o The Standard Deduction for Married Filing Separately is $12,000 (+$1,300 if blind or over 65)
o The $4,050 Exemption per person on the tax return is no longer available
▪ ITEMIZED DEDUCTIONS
o Beginning 2018, if you typically itemize your deductions (instead of taking the standard deduction) …
▪ There is no longer a phase-out of itemized deductions (no income limitation)
▪ Home Mortgage Interest on new acquisitions is limited to the interest paid on total principle balances of $750,000 or less
▪ State and Local taxes paid combined maximum deduction is $10,000 (i.e. Real Estate Tax, State Income Tax, Sales Tax, etc.)
▪ Casualty & Theft Losses are no longer deductible. Only losses attributable to a Federally Declared Disaster Area as declared by the President may be deductible with limitations.
▪ Miscellaneous Deductions are no longer deductible (i.e. unreimbursed employee expenses, employee home office deduction, job search costs, work clothes required by employer, investment expenses, safety deposit fees, individual tax preparation fees, etc.) PLEASE NOTE, THIS IS FOR INDIVIDUALS, NOT BUSINESSES.
o Beginning 2017…
▪ For 2017 and 2018 only, the Medical Expenses Deduction threshold is 7.5% of AGI, beginning 2019, the threshold will return to 10% of AGI
▪ More stringent rules on proof of Charitable Contributions, including requirement of written proof from the charity of any donation over $250
Courtesy of Accountable Financial Services Group, Inc – Tax Year 2018 12
▪ HEALTH INSURANCE MANDATE
o BEGINNING 2019, the penalty for not having minimum essential coverage under the Affordable Care Act is eliminated.
▪ CHILD TAX CREDIT & FAMILY CREDIT, Beginning 2018…
o The Child Tax Credit increased to $2,000 for children under age 16
o NEW! The Family Credit of $500 is available for other qualifying dependents
▪ Other Individual Income Tax Changes, Beginning 2018…
o Section 529 plan distributions are now eligible to pay for elementary and secondary education tuition up to $10,000 (typically used as college savings plan)
o Section 529 plans can be rolled over into ABLE Accounts, limitations apply
o Student Loan debt discharged is no longer taxable in the case of death or disability
o Moving expenses are no longer deductible (exclusion for active duty armed forces)
o Divorce/separation decrees of alimony will no longer be deductible or taxable if dated after 12//31/2018 (existing decrees are unchanged unless legally modified)
o Recharacterized IRA reconversions disallowed
o Stock Option income may be elected to be deferred
o The Alternative Minimum Tax (AMT) for Individuals exemption amount is increased
o The estate and gift tax exemption amount is doubled to $10 million
o Sect 1031 transactions (like-kind exchanges) are now only permitted for real estate
▪ NET OPERATING LOSSES, Beginning 2018…
o NOLs can no longer be carried back, but can be carried forward indefinitely, and are now limited to 80% of taxable income
BUSINESS TAX LAW CHANGES
▪ DEPRECIATION, Beginning 2018
o 100% Bonus Depreciation may be available for certain assets
o Bonus Depreciation is now eligible on new and used property (previously only new assets)
o Section 179 Deduction maximum increased to $1,000,000
o Automobile Depreciation deductions increased
o Certain Farming Equipment depreciation life is shortened from 7 years to 5 years
▪ MEALS & ENTERTAINMENT EXPENSES, Beginning 2018…
o No deduction is allowed with respect to:
▪ An activity generally considered to be entertainment, amusement or recreation
▪ Membership dues with respect to any club organized for business, pleasure, recreation or other social purposes, or
▪ A facility or portion thereof used in connection with any of the above items
o Taxpayers may still generally deduct 50% of the food and beverage expenses associated with operating their trade or business
▪ Other Tax Provisions, Beginning 2018…
o The Corporate AMT is removed
o Interest on Business Debt (loans and credit cards) is limited for business taxpayers with average annual gross receipts in excess of $25 million
o The domestic production activities deduction under IRC section 199 is no longer allowed
o An employer that pays at least 50% of Family Medical Leave will receive a general business credit equal to 12.5% of the amount of wages paid to qualifying employees, limitations apply
Courtesy of Accountable Financial Services Group, Inc – Tax Year 2018 13
o Effective December 23, 2017: The new law adds that No deduction is allowed for any settlement, payout, or attorney fees related to sexual harassment or sexual abuse if such payments are subject to a nondisclosure agreement.
o Effective 2017: The $1 million deduction limitation applies to the CEO and CFO, plus the top 3
executives. Exclusions apply.
▪ INVENTORY and Accounting Methods, Beginning 2018…
o Under UNICAP exemption, business taxpayers with under $25 million gross receipts may use the cash method of accounting, are exempt form percentage-of-completion method on long-term contracts, and are not required to account for inventories, but rather may use a method of accounting for inventories that either:
1) Treats inventories as non-incidental materials and supplies, or
2) Conforms to the taxpayer’s financial accounting treatment of inventories
• RESEARCH and EXPERIMENTAL EXPENDITURES, Effective 2022…
o Must be capitalized and amortized over a 5-year period
o Research conducted outside the U.S. require 15-year amortization
o Computer software development is defined in the Code as research or experimental expenditures
o If this property is retired, abandoned, or disposed of, the costs must continue to be amortized over the remaining amortization period
• Section 199A – Qualified Business Income Deduction
What is the Qualified Business Income Deduction?
o Section 199A of the Internal Revenue Code provides many taxpayers a deduction for qualified business income from a qualified trade or business operated directly or through a pass-through entity. The deduction has two components.
o Eligible taxpayers may be entitled to a deduction of up to 20 percent of qualified business income (QBI) from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate. For taxpayers with taxable income that exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction is subject to limitations such as the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid by the qualified trade or business and the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.
o Eligible taxpayers may also be entitled to a deduction of up to 20 percent of their combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. This component of the section 199A deduction is not limited by W-2 wages or the UBIA of qualified property.
o The sum of these two amounts is referred to as the combined qualified business income amount. Generally, this deduction is the lesser of the combined qualified business income amount and an amount equal to 20 percent of the taxable income minus the taxpayer’s net capital gain. For details on figuring the deduction, see Q&A 6 and 7. The deduction is available for taxable years beginning after Dec. 31, 2017. Most eligible taxpayers will be able to claim it for the first time when they file their 2018 federal income tax return in 2019. The deduction is available, regardless of whether an individual itemizes their deductions on Schedule A or takes the standard deduction.
Visit https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs for additional questions and answers about Section 199A.