Tax Changes are on the way!!! See below to read about the Tax Cuts and Jobs Act 2017.
The Tax Cuts and Jobs Act is arguably the most significant change to the Internal Revenue Code in decades, the law reduces tax rates for individuals and corporations and repeals many deductions, thus simplifying filing for many taxpayers. Most of the individual changes will expire at the end of 2025, meaning the old tax code rates and deductions will return in 2026 unless Congress passes another law before then. Following are the most notable changes taking effect after December 31, 2017.
Tax Brackets and Tax Rates There are seven tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Personal Exemptions The personal exemption is repealed.
Kiddie Tax The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. Unearned income is income from sources other than wages. Taxable income attributable to net unearned income will be taxed according to the brackets applicable to trusts and estates. The rules for tax applicable to earned income are unchanged.
Child Tax Credit The child tax credit will increase to $2,000 per qualifying child and will be refundable up to $1,400, subject to phaseouts. To receive the refundable portion of the child tax credit, a taxpayer must include a social security number for each qualifying child claimed on the tax return. Also included is a temporary $500 nonrefundable credit for other qualifying dependents who are not qualifying children. Phaseouts, which are not indexed for inflation, will begin with adjusted gross income of more than $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.
Student Loan Interest Deduction For 2018, the maximum amount that you can deduct for interest paid on student loans remains at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 ($135,000 for joint returns) and is completely phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000 or more ($165,000 or more for joint returns). For graduate students who teach, or the children of university employees, the deferred tuition provided would not be taxable. There are no changes to the current law regarding the American Opportunity Credit or the Lifetime Learning Credit.
Section 529 Plans Distributions of up to $10,000 per beneficiary can be used for tuition expenses for public, private or religious elementary or secondary school. The limitation applies on a per student basis rather a per account basis. Rollovers from a 529 plan to an ABLE account are allowed without penalty provided the ABLE account is owned by the same designated beneficiary of the 529 plan or a member of the designated beneficiary’s family. Rolled-over amounts count towards the overall annual limitation on contributions to the ABLE account. Discharged of Student Loan Indebtedness The exclusion from income resulting from the discharge of student loan debt is expanded to include discharges resulting from death or disability of the student. Itemized Deductions With the exception of state and local income taxes, mortgage interest, medical expenses, disaster losses, charitable contributions and other deductions not subject to the 2% floor, all other itemized deductions are repealed. The overall limitation on itemized deductions for upper-income individuals is also repealed.
State and Local Taxes Taxpayers can claim a deduction for a combination of state and local income tax, sales tax, or real property tax. The aggregate deduction is capped at $10,000. Foreign real property taxes are no longer deductible.
Under this provision, an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017. Medical Expenses For 2017 through 2018, expenses exceeding 7.5% of income are deductible; that percentage increases to 10% in 2019. Under this provision, these thresholds also apply for determining AMT. Charitable Contributions Taxpayers who are able to itemize deductions can include charitable contributions. The current limitation of 50% of income is increased to 60%. The standard mileage rate with regard to the use of a taxpayer’s automobile for charitable purposes is indexed for inflation in taxable years beginning after December 31, 2017. Mortgage Interest The deduction for mortgage interest is capped at $750,000 of debt. The interest deduction is allowed on a first or second home. The interest on home equity loans will no longer be deductible. Interest on up to $1 million of acquisition debt for loans prior to December 15, 2017 is grandfathered.
Casualty Losses Deductions for unexpected losses to personal property are no longer deductible unless covered by specific federal disaster declarations. Wagering Losses The meaning of losses from wagering transactions is clarified to include other expenses incurred by the individual in connection with the conduct of that individual’s gambling activity such as travel expenses to or from a casino. Teacher Expenses The bill retains the present law above-the-line deduction of $250 (indexed for inflation) for out-of-pocket expenses. Bicycle Commuting Reimbursement The exclusion from gross income and wages for qualified bicycle commuting reimbursements up to $20 is suspended. Moving Expense Reimbursements The exclusion from gross income and wages for qualified moving expense reimbursements is repealed except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order.
Alimony Beginning with new divorces in 2019, alimony payments to an ex-spouse are no longer deductible and not taxable to the recipient.
Affordable Care Act The penalty for failing to maintain minimum essential coverage for individuals (individual mandate) is repealed beginning in 2019. The tax on net investment income (NIIT) remains. IRA Recharacterizations The special rule allowing a contribution to one type of IRA to be recharacterized as a contribution to the other type of IRA no longer applies to a conversion contribution to a Roth IRA. Thus, recharacterization cannot be used to unwind a Roth conversion. However, recharacterization is still permitted with respect to other contributions. For example, an individual may make a contribution for a year to a Roth IRA and, before the due date for the individual’s income tax return for that year, recharacterize it as a contribution to a traditional IRA. In addition, an individual may still make a contribution to a traditional IRA and convert the traditional IRA to a Roth IRA, but the provision precludes the individual from later unwinding the conversion through a recharacterization. ... See MoreSee Less