Don’t ignore these 2018 tax bill game-changers!

This year marks the first for filing tax returns utilizing the 500+ pages of tax code changes passed into law in late 2017. Chances are you’re going to be in for a big surprise come tax season if you haven’t considered how these new rules will change your tax obligations.

These changes simplify the individual income tax for over 28 million US households. Many filers who may have itemized deductions in years past will be better off taking the newly expanded standard deduction, instead of itemizing them. But that should be determined by a professional.

The calculation of your income tax liability is based on your adjusted gross income (AGI). AGI is calculated by an individual, or joint filers adding all sources of income to determine the total annual income earned, then reducing that number by allowed deductions, exclusions, and credits. Prior to the enactment of the new tax law, the federal tax code included three major provisions that reduced household income taxes in proportion to the number of household members: the standard deduction, the child tax credit, and the personal exemption.

With the new tax law in place, personal exemptions are gone. The $4,050 income reduction for each exemption is now set to zero, yes ZERO. Which means, your AGI will be that much higher in 2018. Standard deductions, however, are virtually doubled. To offset the loss of the personal exemption, the standard deductions are now higher; $24,000 for married joint filers and $12,000 for single filers.

For most individuals, tax rates are lower. Five of the seven tax rates drop by 2 to 4 percent, however, the income ranges of these new rates have changed. Your income may now fall into a different tax bracket, so you may be taxed at a different rate.

Beginning in 2018, the child tax credit doubles from $1,000 to $2,000 per qualified child under the age of 17, with up to $1,400 refundable. Another advantage is the new tax law raised the income level at which the phaseout of the credit begins, up from $110,000 to $400,000 for married filed jointly households These two provisions expand both the value of the credit as well as the number of individuals able to claim the credit.

Under previous law, individuals could deduct the entire amount paid of either state individual income tax or state sales tax, but not both, along with state and local property taxes paid. This deduction disproportionately benefited high-income taxpayers. Now, itemizers are limited to deducting a total of $10,000 among state and local property, sales, and income taxes paid.

The new tax law also reduces the amount of home mortgage debt that itemizers can deduct interest on from $1 million to $750,000 and suspended the deductibility of interest on home equity loans and lines of credit unless they are used to buy, build, or substantially improve the taxpayer’s home that secures the loan.

With all the big tax changes, you may not know whether or not you’ll be itemizing your 2018 tax return. If you have high medical expenses, have made considerable charitable donations, or you have a home mortgage chances are you will still be itemizing deductions. If you did itemize last year for miscellaneous deductions, like unreimbursed business expenses or had a theft or casualty loss in a area not federally declared a disaster area, you will not be itemizing for 2018.

The percentage limit for charitable cash donations made by an individual has increased from 50 percent to 60 percent, meaning for individuals who donate large shares of their income to charitable organizations, they will be able to take a larger deduction. The medical and dental expenses deduction threshold decreased from 10 percent of AGI to 7.5 percent of AGI (for tax years 2017 and 2018), meaning taxpayers have a lower threshold to exceed to deduct their medical expenses if they itemize.

If you own a business, you may now be able to take advantage of a 20% small business income deduction. This new tax benefit has many limits and qualifications but should benefit most small businesses like our local mom and pop businesses on Staten Island. The deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. It’s generally equal to the lesser of 20 percent of their qualified business income plus 20 percent of their qualified real estate investment trust dividends and qualified publicly traded partnership income or 20 percent of taxable income minus net capital gains.

Capital expensing rules have been revised. There is a new 100 percent first-year bonus depreciation benefit and Section 179 capital purchase expensing limits increase to $1 million.

The entertainment deduction has been limited. While most qualified business meals can still be deducted by 50%, entertainment related expenses are typically no longer deductible.

Everyone will be impacted by the new tax changes. Be prepared to see many of these new rules applied to your tax return this year. Now is the time to consult with your tax professional to review your options to minimize your 2018 taxes.

Anthony Mauriello, E.A.   My Tax Fella – Mauriello Enterprises, Inc.
(718) 356-5178