Concerned about tax reform?

The new tax bill focuses on changes for tax years beginning January 1, 2018, which means most of the changes will be on our 2018 tax returns, which aren’t due until April 15, 2019.

I understand that most changes will affect the return I file in 2019, but what do I need to know now?

• Keep an eye out: You could see an increase or decrease in your take-home pay.
• Businesses, including small businesses, can now expense up to $1M in assets and the list of qualified property has been expanded to include improvements to rental and business property.
• You can claim any excess qualified medical expenses over 7.5% of your Adjusted Gross Income (AGI) as part of your itemized deductions for the 2017 and 2018 tax years.
• Check your withholding now that the new 2018 W-4 form and instructions are available. The early change was an estimate and may not reflect what you need next year.

The new bill keeps seven different tax brackets and reduces the existing brackets. The new brackets are: 10%, 12%, 22%, 24%, 32%, 35% and 37% (the current rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%). Many of the lower tax brackets are widened, allowing for lower taxes at all income levels. Small business owners who are sole proprietors or whose business income is taxed on their individual return will get to deduct 20% of their qualified net income before income taxes are computed.

The standard deduction sees a big increase. These are the new standard deduction amounts:

• Single: $12,000 (up from $6,350)
• Married Filing Jointly/Surviving Spouse: $24,000 (up from $12,700)
• Head of Household: $18,000 (up from $9,350)
• Married Filing Separately: $12,000 (up from $6,350)
• Age 65 or older, blind, or disabled: Add $1,300 to your standard deduction ($1,600 for unmarried taxpayers)

Itemized deductions are still available, but only the following, and there are new limits or thresholds:

• Mortgage interest paid on an original loan for up to $750,000. Interest paid on a second mortgage or equity line may still be deductible as long as it is for home improvements and, combined with the remaining original principal, does not exceed the original loan amount.
• The medical expenses floor, or amount subtracted from the total expenses before deduction, has been reduced to 7.5% of Adjusted Gross Income (AGI) for all taxpayers.
• Charitable contributions – the new limit is 60% of AGI. Any charitable contributions over this amount must be carried forward and added to the next year.
• Personal and dependent exemptions have been suspended. However, there have been adjustments to the Child Tax Credits to help offset the change.
• Regular Casualty and Theft losses are no longer allowed. However, taxpayers in Federally Declared Disaster Areas may still claim their losses.

The Child Tax Credit and the Additional Child Tax Credit are larger. The total Child Tax Credit for each qualifying child under age 17 is now $2,000 per child, in addition up to $1,400 of the credit for each child is refundable. The credit is available on incomes up to $400,000 if filing a joint return, and $200,000 for all others. There is also a new $500, nonrefundable credit for dependents who do not qualify for the Child Tax Credits. The changes to the credit can mean potentially less taxes and a bigger refund for middle-income taxpayers.

The penalty for not having health insurance remains $695 per person, or almost 2.5 percent of income, for the 2017 and 2018 tax years. The penalty has been set to $0 beginning January 1, 2019.

Under the new tax laws there are no personal or dependent exemptions.

The AMT is still here, but with a higher exemption of $109,400 if you are Married Filing Jointly (up from $84,500), $70,300 for Head of Household (up from $54,300), and $54,700 if you are Married Filing Separately (up from $42,250). The exemption phase-out threshold is increased to $1 million for MFJ taxpayers and $500,000 for all others.

Basically, deduct 20% of business income, and the remainder is taxed at new rates. There is some other great stuff for “immediate expensing” of business assets, and small businesses are big winners!

To keep the cost of the bill within Senate budget rules, all of the changes affecting individuals will expire after 2025. At that time, if no future Congress acts to extend these measures, the individual tax provisions would sunset, and the tax law would revert to its current state.

• There are no more business expense deductions. If you have been a remote employee who deducted a home office, travel, or other items, you’ve lost a large deduction.
• Annual Inflation Adjustment computation has been changed to a method that will provide a smaller increase each year.
• The Moving Expense Deduction is repealed unless you are an active-duty member of the military.
• Alimony payments are no longer deductible by the payer, and they’re no longer considered income for the recipient.
• Kiddie Tax has been simplified and reduced, and is no longer based on the parent’s tax rate.
• Taxpayers can no longer donate money to a college, sorority, or other school based organization and receive a reserved season ticket to sports events.