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Download our Tax Cuts and Jobs Act Special Report
Wondering how the newly passed tax reform bill will be affecting you and your business? Download this report - it outlines all of the major changes.
The new Tax Cuts and Jobs Act signed into law for 2018 provides the most significant tax reforms since the Tax Act of 1986. These new sweeping changes will impact nearly everyone in the United States. Our experts know the Tax Cuts and Job Act’s new laws…while the provisions within are still fine-tuning. Now more than ever, you need to consult with a tax expert. With our year-round tax planning and tax compliance services, you can count on SVA’s tax professionals to know what you need to know.
Here’s a quick review of a few key changes that may have an impact on your individual taxes:
Individual Tax Rates: The bill retains the current seven brackets, but the rates and income levels to which they apply have changed. The tax rates decreased for most income brackets by 1%-4%.
Notably, the top rate drops to 37% from the current 39.6%. And the 37% won't kick in until your taxable income hits $600,000, up from the current $470,700 for marrieds filing jointly. For singles, the threshold rises to $500,000, up from $418,400.
The new 35% bracket will have lower starting points: $400,000 vs. the current $416,700 for marrieds filing jointly, and for singles $200,000 vs. today's $416,700.
Standard Deduction: Increased from $12,700 to $24,000 (married filing jointly) and from $6350 to $12,000 (single). Consult your SVA professional on the benefits of tax planning for reporting your itemized deductions or standard deduction.
Personal Exemptions: Repealed (it was a $4,050 deduction that each taxpayer could take for themselves, spouse and dependents).
Medical Expenses: The AGI threshold for medical expenses has been lowered to 7.5% for 2017 and 2018.
State Income (or Sales Tax) and Real Estate Taxes: Deduction is limited to a maximum of $10,000 (the limit is the same for married couples and single taxpayers).
Mortgage Interest: Deduction is limited to the interest on the first $750,000 of debt. For mortgages prior to December 16, 2017, the interest on the first $1 million of debt is deductible. Interest on a second home is deductible within the mortgage debt caps. Refinancing has specific limitations.
Home Equity Interest: On February 21, the IRS issued a release (IR 2018-32) explaining that the law suspends the deduction only for interest on home equity loans and lines of credit that aren’t used to buy, build or substantially improve the taxpayer’s home that secures the loan. In other words, the interest isn’t deductible if the loan proceeds are used for certain personal expenses, but it is if the proceeds go toward, for example, a new roof on the home that secures the loan. The IRS further stated that the deduction limits apply to the combined amount of mortgage and home equity acquisition loans — home equity debt is no longer capped at $100,000 for purposes of the deduction.
Miscellaneous Itemized Deductions: No longer deductible. Examples: investment expenses, employee business expenses, professional fees.
Child Tax Credit: Doubled to $2,000 for each qualifying child under the age of 17. The phase-out of the credit starts at $400,000, which is a significant increase. There is a $1400 refundable credit.
Alternative Minimum Tax (AMT): AMT exemption was increased from $84,500 to $109,400 (married filing jointly) and from $54,300 to $70,300 (single). The threshold for phase-out of the exemption starts at $1 million (married filing jointly) and $500,000 (single) which is a significant increase.
Alimony: For a divorce or separation after 12/31/18, alimony is not deductible by the payer and is not income to the recipient. See our divorce consultants for additional details.
Estate and Gift Tax Exemption: The lifetime exemption was doubled to $11.2 million.
Pass-through Income Deduction: Up to 20% of qualified business income is subject to various limitations. The deduction is not available for professional service businesses (including accounting, health, law, consulting, athletics, financial services, and brokerage services) except architecture and engineering.
The W-2 and capital limitations and the professional service businesses exclusion do not apply to individuals with taxable income of less than $315,000 (married filing jointly) or $157,500 (single). Limitation phase-in is over the next $100,000 of taxable income.