Tax Reform (Part 1)

Happy New Year!

Last year I sent out an email highlighting the possible tax changes for 2017. Many of those tax changes will now start in 2018.

For 2017, not much has changed. Taxes should be “business as usual”. As always, I recommend filing your taxes as early as possible. Not only does filing early help with potential fraud issues but it is also a great way to start the new year!

For 2018, here are some of the tax issues that I think will most effect you.

INDIVIDUAL TAX REFORM

Tax Rates – taxpayers will continue to be placed in one of seven tax brackets based on their income. But the rates for some of these brackets have been lowered. The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

Standard Deduction – the new tax law nearly doubles the standard deduction. For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, it's increased from $12,700 to $24,000.

State and Local Tax Deduction – the state and local tax deduction remains in place for those who itemize their taxes -- but now there's a $10,000 cap. Previously, filers could deduct an unlimited amount for state and local property taxes, plus income or sales taxes.

Mortgage Interest Deduction – current homeowners are in the clear. But from now on, anyone buying a new home will only be able to deduct the first $750,000 of their mortgage debt. That's down from $1 million. This is likely to affect people looking for homes in more expensive coastal regions.

Personal Exemption - previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income. No longer. For some families, the elimination of the personal exemption will reduce or negate the tax relief they get from other parts of the reform package.

The combination of the higher standard deduction and the elimination of personal exemption is not such a great deal for married couples or head of household filers with 3 or more children. However, the new Child Tax Credit should help offset the loss of personal exemptions.

Child Tax Credits – to help offset some of the loss of personal exemptions, the new tax law has doubled the child tax credit to $2,000 for children under 17. It's also now available, in full, to more people. The entire credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000.

Non-Child Tax Credits – taxpayers may now claim a $500 temporary credit for non-child dependents. This can apply to a number of people a taxpayer may support, such as children over age 17, elderly parents or adult children with a disability.

Alternative minimum tax - ATM is still with us but the exemptions amount has been raised to $70,300 for singles and $109,400 for married couples effectively eliminating ATM for many taxpayers.

Say good bye to deductions - there are a few minor deductions that will no longer be allowed such as moving expenses, tax preparation fees, losses sustained due to a fire, storm, shipwreck or theft and alimony payments.

Changing the tax laws never quite works out the way intended. There are a lot of pieces that are put in motion and one can never control or predict the outcome of these changes. The IRS still needs to write the regulations and the software companies have some major rewrites to their software.

For now, I would recommend gathering your 2017 tax information as soon as possible and getting your taxes done early. As the new tax regulations and software roll out we will be in better position to see how the new tax law will affect you and your taxes.

In a separate post, I will discuss the business tax changes.