2018 taxpayers will see many changes related to individual taxes due to the “Tax Cuts and Jobs Act” passed in December 2017. Many of the provisions in the new law expire (sunset) January 1, 2026. The changes affecting most individual taxpayers include:
1. The new “simplification law” keeps the same number of tax brackets but changes the taxable income thresholds and tax rates. The highest bracket is now 37% (down from 39.6%) for taxable income over $600,000 for joint filers, $300,000 for married filing separately, and $500,000 for all other filers.
2. The standard deduction for joint filers (the deduction you can reduce your adjusted gross income by if you don’t itemize) has increased from $12,700 in 2017 to $24,000 starting January 1, 2018. With this increase, the deduction for personal exemptions has been eliminated.
3. The itemized deduction for state and local taxes has been capped at $10,000 for all filers ($5,000 for married filing a separate return). This includes state and local property taxes and state and local income taxes. This does NOT apply to business taxes.
4. Starting January 1, 2018, the deduction for mortgage interest is limited to $750,000 of underlying debt. There is no longer a deduction allowed for interest on home equity loans. The new limit does not apply to debt incurred before 12/15/17 with special exceptions if the home was not purchased by 12/15/17. The old law ($1 million of indebtedness) still applies for joint filers who refinanced an existing loan prior to 12/15/17.
5. There is no longer a deduction allowed for miscellaneous itemized deductions that are greater than 2% of a taxpayer’s adjusted gross income. Examples include unreimbursed employee business expenses and tax preparation fees.
6. Alimony is no longer deductible by the person paying (payor spouse) it and is not included in the income of the person receiving it (payee spouse). This applies to any divorce or separation agreement executed or amended after December 31, 2018.
7. The Child Tax Credit has been increased from $1,000 per qualifying child under 17 to $2,000 per qualifying child. The credit begins to phase out at adjusted gross income over $400,000 for married taxpayers filing jointly. To qualify for the credit, the taxpayer must provide the child’s social security number.
8. For months beginning after December 2018, the penalty for individuals not covered by a health plan that provided at least minimum essential coverage required by the Affordable Care Act or Obamacare will no longer have to pay a “shared responsibility payment” (penalty). This repeal is permanent.
9. The Alternative Minimum Tax (AMT) remains in place under the new law, however, the AMT exemption amounts are increased for tax years after Dec. 31, 2017 and before Jan. 1, 2026.
10. After December 31, 2017 distributions from 529 for “qualified higher education expenses” include tuition at an elementary or secondary public, private, or religious school up to a $10,000 limit per year.
11. For tax years beginning after December 31, 2017 the maximum amount of depreciation that may be taken on qualifying property under Section 179 increases to $1,000,000 (up from $500,000).
12. The first-year depreciation for passenger automobiles placed in service after December 31, 2017 has been increased to $10,000, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years.
13. Qualified improvement property can be depreciated over 15 years (as opposed to 39 under the old law) for property placed in service after 12/31/17. The 15-year write-off is allowed regardless of whether the property is subject to a lease or if it was placed in service more than 3 years after the date the building was first placed in service.
14. The new law eliminates the deduction for Domestic Production Activities (Code Section 199). Example Cerec.
15. Deductions for Entertainment expenses after 12/31/17 are disallowed AND the current 50% limit is expanded to include meals provided on the premises of the employer.
About the Dental CPAs
Since 1956, dental practitioners have counted on us for high-caliber guidance and support. We take a comprehensive approach with our dental clients. We provide the answers, as well as the practical plans, to help you secure your dental goals.