Charging Into 2018 With Tax Reform – What Individuals Need To Know
On December 22, 2017, President Trump signed into law the 2017 Tax Cuts And Jobs Act. It’s been a good 30 years since the last time the Internal Revenue Code received such a major update.
Major Changes From The New Law Include:
Lower Income Tax Rates For Individuals.
Increased Standard Deduction For Individuals
Elimination Of Personal Exemptions
Limitations of Deductibility Of Itemized Deductions including Mortgage Interest and State & Local Taxes.
Lower Corporation Tax Rates.
The Big Picture:
Starting in 2018 tax rates are lower so less of you will get to keep more of your income, a deduction is worth less. On top of that, several popular deductions are disappearing next year or getting substantially limited and in combination with a nearly doubled standard deduction, less taxpayers will be itemizing.
New Tax Rates – A graduated rate structure and seven tax brackets still remains in place but the maximum tax rate is lowered from 39.6% to 37% for income in excess of $500,000 (single taxpayers) or $600,000 (married taxpayers filing joint returns).
Increase Of Standard Deduction – A substantial increase to $12,000 for single filers (was $6,500), $18,000 for heads of household (was $9,550), and $24,000 for joint filers (was $13,000).
Lowered Threshold For Deducting Medical Expenses – Medical expenses that exceed 7.5% (was 10%) of Adjusted Gross Income will now be deductible.
Increase In Alternative Minimum Tax Exemption – With an increase in the “exemption amount” and amounts at which the exemption phases out, fewer taxpayers should find themselves subject to this tax.
Expansion Of The Child Tax Credit – The credit is increased from $1,000 to $2,000, while increasing the phaseout from $110,000 in current law to $400,000 married couples. The first $1,400 would be refundable.
Repeal Of The Individual Mandate Penalty – Effective January 1, 2019, there will be no penalty to taxpayers who do not have health insurance coverage.
Elimination Of Personal Exemptions – While the doubling of the standard deduction and expansion of the Child Tax Credit will help offset this tax benefit elimination, larger families may still find that their overall tax burden increases.
Limit On Deduction For State And Local Taxes – A taxpayer may claim an itemized deduction of only up to $10,000 ($5,000 for a married taxpayer filing a separate return) in (i) personal state and local property taxes, and (ii) state and local income taxes (or sales taxes in lieu of income taxes). Taxes paid or accrued in carrying on a trade or business are not subject to this limitation.
Limit On Deduction Of Mortgage Interest – For mortgages incurred after December 31, 2017, taxpayers may deduct interest on up to $750,000 of principal (mortgages existing before January 1, 2018 are still subject to the pre-existing law’s $1 million limit). But for all taxpayers there is no longer a deduction for interest paid on home equity loans.
Elimination Of Miscellaneous Itemized Deductions And Deduction For Moving Expenses – A taxpayer can no longer deduct miscellaneous itemized deductions which include unreimbursed employee expenses and tax preparation costs. Also the deduction for moving expenses is gone.
What Should You Do?
You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Long Beach and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.