{7:12 minutes to read}  ​It has been said this is the biggest tax overhaul of the last seven decades; most of us may not have experienced the last one.

From a high level overview, notwithstanding the fact that certain individual itemized expenses will be increased, combined & capped, or eliminated, lower income individuals will have a reduced tax bill. The intent of this article is to quiet some of the noise surrounding the recent Tax Cuts and Jobs Act Bill and highlight some of the advantages and disadvantages.

Before we get into the calendar year 2018, here are the four main changes that will affect your 2017 individual tax returns:

1. Medical Expenses: The threshold was lowered (and will continue in 2018).
2. Refinance: If you refinanced in 2017, there are some changes to mortgage debt;
3. Depreciation: If you purchased certain equipment during the year, the manner in which it is depreciated has changed.
4. ACA: Health Insurance penalty (individual mandate) – Penalties will still apply in 2017 and 2018. The penalty for not having qualified health insurance is removed beginning in 2019; however, some states make this mandatory beyond 2018.

Let’s now review a few of the key changes that may affect you (individual & family), beginning calendar year January 01, 2018:

New Tax Rates & Brackets: The new bill keeps the seven different tax brackets (10% – 37%). The biggest increase in rate is between the 12% and 22% brackets. If you are just a few thousand dollars of taxable income above $50,700 single and $101,400 MFJ (counting standard deduction), consider an IRA contribution, 401-k, HSA contribution, business expenses, etc. to get back down to a 12% bracket.

Another big (and possibly costly) increase is income exceeding $157,500 ($315,000 MFJ).

To see the 2018 rates in more detail and a comparison of the OLD and NEW Tax Brackets and Rates, Click Here.

Deduction (Itemized or Standard):

Itemized deductions (Schedule A): Here is where you will find the most notable changes. Items affected are:

1. 1. 1. Property tax;
      2. State/local income tax;
      3. Mortgage & home equity interest;
      4. Employee job related expenses.

Property tax, sales tax, state and local income tax are now lumped together with the deduction capped at $10,000.

Home equity mortgage interest is gone. Mortgage interest is still deductible up to $1M mortgage loan; however, new loans will be capped on mortgage debt up to $750,000. Also, if you enter into a binding written contract before 12/15/17 with the intent to close before 1/1/2018 and which does close before 4/1/18, you may use the old rules; certain exclusions apply.

If you live in a state with a high income tax such as CA, NY, NJ, etc., take advantage of your employer’s reimbursement plans (accountable expense plan) for job related expenses, payroll related deductions, max out on your 401-K, and business expenses.

Standard deduction will double to $12,000/$24,000 (single/married).

Personal exemption: This deduction is gone but all is not lost since it is “substituted or replaced” by a higher child tax credit. Some higher income families can now take the credit since the income threshold increased drastically. Under the old tax rules you were not able take this credit.

Payroll Withholding: With the new W-4, you will see some changes in the withholding tables in the coming weeks. In the past, this was based on the standard deduction and personal exemptions; with the elimination of the personal exemptions, some tax planning may be necessary to ensure you are not faced with a big tax bill at year end.

Alternative Minimum Tax (AMT): The income threshold has increased so less taxpayers will be negatively affected.

Capital Gains: The Act retains the present-law maximum rates on net capital gain and qualified dividends, retaining the existing breakpoints between 0%, 15%, and 20%.

Investment Advisory Fees: These are gone, however with proper planning, may be able to be deducted from the assets being managed.

Education Savings: 529 plans have been expanded and are not just for college. It now includes enrollment or attendance by the designated beneficiary at a public, private or religious elementary or secondary school. See more at www.savingforcollege.com.

Unearned Income for Children: In 2018, dependent children will have the first $1,050 of unearned income continue to be free of tax. The next $1,050 of unearned income to be taxed at ordinary (10%) rates, with any excess over this total of $2,100 taxed at trust rates. Remember, at $12,501 of excess unearned income the kids will be taxed at 37% rates for regular tax and 20% (plus potential 3.8% surtax) on capital gains.

Marriage Tax: The so-called marriage penalty has been almost eliminated (but will affect higher income couples). Here is an added incentive to develop a more kind & healthy relationship with your partner.

Alimony Payments Deduction: This deduction is gone after December 31, 2018.

While we cannot cover all the changes in the new tax code in one article, we trust that this article sheds some light on what to expect for the 2018 Tax Year (calendar year).

May we suggest scheduling a 2018 Tax planning consultation mid-year 2018? This will help you better understand how the new tax code affects YOU directly. Don’t just sit and do nothing. Let’s navigate the grey together.

A separate article will be coming for pass-thru entities (such as S-Corp, LLC and partnership) and C-Corp. The new tax rule changes the very face of pass-thru entities. While the practicality of the tax code is still unraveling for these entities, we will provide an overview of the changes in the next article.

Thank you for reading.
Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com