Tax Cuts and Jobs Act will affect all taxpayers. See highlights below.
Exemptions for yourself, spouse, and dependents in 2017 was $4,050. For 2018, personal exemptions is ZERO.
Standard Deduction is used if your itemized deductions do not exceed the following:
Married filing jointly (MFJ) $24,000
Head of Household $18,000
1. No phase-outs of itemized deductions for high income taxpayers as in past years.
2. Medical expenses limited to the excess of 7.5% of Adjusted Gross Income (AGI). The was 10% of AGI in 2017.
3. State and local taxes and real estate taxes limited to $10,000.
4. Job and miscellaneous expenses that were subject to a 2% phase out are NOT deductible.
5. Home Mortgage interest expense for new mortgages limited to a maximum loan of $750,000. (Was $1m.)
6. Home Equity loans- interest deductible only if loan is used to improve your home. (Was deductible up to $100,000 loan used for anything.)
7. Charitable donation deduction maximum has increased to 60% of AGI. (Was 50%).
Moving expenses are NOT deductible. Moving expense reimbursements from your employer are now taxable as wages. Military still gets an income exemption.
Child tax credit for dependent children under age 17 has increased to $2,000. (Was $1,000). Now, $1,400 of the credit is refundable. This is phased out for high income taxpayers ($400,000- joint returns and $200,000- others), and you must have at least $2,500 of earned income (wages or self employed income.)
New $500 Credit is available for any dependent who is not a qualifying child. (Example- parents.) This is phased out for high income taxpayers. ($400,000- joint returns and $200,000- Others.)
Alimony agreements after 12/31/17 are not deductible by the paying taxpayer and are not income by the receiving taxpayer.
Casualty Losses are limited to Federally declared disaster areas and must exceed $100 plus 10% of AGI.
Penalty for No Health Insurance still applies to 2018. This is removed 1/1/2019.
Tuition and Fees deduction on page one of form 1040 is gone.
Teachers can deduct $500 for school supplies they paid for their students. Up from $250.
Estate Tax Exemption is now $11,180,000 per person. If your total assets are under this, no estate tax will be due upon your death.
Gift Tax Exclusion has increased for 2018 to $15,000. Gifts to family member in excess of this amount may require the filing of a gift tax return. Normally, no tax is due with the return. This does not limit current gifts to a 501(c)3 tax exempt organization like your church.
20% tax deduction of qualified business income (Sect 199A)- I believe this is the biggest change in the tax act for Subchapter S Corporations, Partnerships, Schedule C’s, Trusts or Estates. Qualified taxpayers can exclude from income 20% of Qualified Business Income (Normally Net Income). This is reflected on your personal 1040 tax return. Complicated rules come into play if your 1040 income is over $315,000 for married couples and $157,500 for all other taxpayers. Simple Example- your net taxable income is $100,000. You pay tax on $80,000.
C Corporations-Beginning after 12/31/17, the new tax rate is a flat 21%.
100% Bonus Depreciation– Qualified business property acquired after 9/27/2017 and before 1/1/2023 is eligible for 100% depreciation (complete write off) in the year of purchase. The asset must have a tax recovery life of 20 years of less. Taxpayer can elect out of the 100% bonus depreciation.
Automobile and Truck Depreciation used in a business has been increased to $18,000 in
year 1, $16,000 in year 2, $9,600 for year 3, and $5,760 for the remainder of the cost.
2018 Business Mileage Rate is 54.5 cents per business mile. (2017 was 53.5 cents.) You can use this or the actual cost of your business vehicle plus depreciation.
Section 179 Expense- A taxpayer may elect to expense the cost of qualified business assets that normally would be recorded as a fixed asset and depreciated over time. The amount of assets purchased in a tax year has been increased from $500,000 to $1 million for property placed in service after 12/31/17.
Meals and Entertainment-
No deduction for entertainment PERIOD. Only 50% of business meals are deductible. Business must be discussed during the meal and documented. “Celebratory” meals such as holiday parties are fully deductible.
Family and Medical Leave Tax Credit for employers who continue to pay wages during the leave is effective after 12/31/17. Employers must pay wages for least two weeks at a rate of at lease 50% of normal wages.
Net Operating Losses are generated when operating expenses exceed income. The net loss can no longer be carried back, but can be carried forward indefinitely. Net Operating Loss deductions carried forward are now limited to 80% of taxable income.
Like Kind Exchanges is limited to exchanges of real property held for use in a trade of business. This means if you trade in a vehicle for a new one, tax may be due.
Domestic Production Activity Deduction as of 1/1/2018 is gone.
Please contact us if you have any questions.