Tax Updates

Tax Cuts

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.

Individuals

Tax Brackets and Tax Rates

There are seven tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

Alternative Minimum Tax

The phaseout thresholds are increased to $1,000,000 for married taxpayers filing a joint return,

and $500,000 for all other taxpayers (other than estates and trusts). These amounts are

indexed for inflation.

Estate Tax Exemption

The estate and gift tax exemption is doubled for estates of decedents dying and gifts made after

December 31, 2017, and before January 1, 2026. This is accomplished by increasing the basic

exclusion amount provided in §2010(c)(3), and indexed for inflation. The exemption increases to

$11,200,000 in 2018.

The generation skipping transfer (GST) tax exemption is also doubled.

Standard Deduction

Married filing jointly $24,000

Head of Household $18,000

Single $12,000

Married filing separately $12,000

Additional amount if over age 65, blind or

disabled

$1,600 – Unmarried individuals

$1,300 – Each spouse meeting criterion

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The personal exemption is repealed.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 upperincome

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 prepayment

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 outof-

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.

Plan Loan Offsets

An employee’s obligation to repay a plan loan is accelerated and, if the loan is not repaid, the

loan is cancelled and the amount in employee’s account balance is offset by the amount of the

unpaid loan balance, referred to as a loan offset. A loan offset is treated as an actual distribution

from the plan equal to the unpaid loan balance and is eligible for tax-free rollover to another

eligible retirement plan. A rollover contribution is extended from 60 days after the date of the

offset to the due date (including extensions) for filing the federal income tax return for the

taxable year in which the plan loan offset occurs, that is, the taxable year in which the amount is

treated as distributed from the plan.

A qualified plan loan offset amount is a plan loan offset amount that is treated as distributed

from a qualified retirement plan, a section 403(b) plan or a governmental section 457(b) plan

solely by reason of the termination of the plan or the failure to meet the repayment terms of the

loan because of the employee’s severance from employment.

Call our office to discuss your situation. 

**First day to e-file your 2017 tax return is for Monday January 29, 2018 per the IRS.

**Some refunds delayed in 2018—Certain taxpayers will get their refunds a bit later.  The IRS strongly encourages people to file their tax returns electronically for faster refunds.

**Big changes with the Tax Cuts and Jobs Act of 2017.  Schedule your appointment and see what changes may affect you. 

IRS refund status is updated every 24 hrs at www.irs.gov.  You will need your filing status, social security # and exact refund amount.

Schedule your tax appointment now even if you think you owe money, you have until 4/17/18 to actually pay it!

Tax Payments Easier with New “Direct Pay”

Direct Pay is at www.irs.gov; click the “Pay Your Tax Bill” icon on the top of the irs.gov page.

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