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To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein. 

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Tax Cuts and Jobs Act of 2017 For Individuals & Health Care

December 11, 2018

**Photo by Chuck Fitzgerald

 

Tax Cuts and Jobs Act of 2017

Changes For Individual Taxpayers

 

 

The Tax Cuts and Jobs Act of 2017  (TCJA) will result in major changes for individual taxpayers; some will save taxes but others will pay more. The following list summarizes some of the things that will be different on 2018 tax returns:

 

Standard Deduction:

The standard deduction on a single return increases from $6,350 to $12,000 and for joint returns it goes from $12,700 to $24,000.  The standard deduction increases by $1,300 for taxpayers over 65 or blind filing a joint return. This increase means more taxpayers will use the standard deduction.

 

State and Local Taxes:

The deduction for state income taxes and local property taxes is now limited to $10,000.  This limit will further reduce the number of taxpayers who itemize deductions.  On the positive side, many taxpayers with high SALT deductions in the past lost some or all of the tax benefit due to the alternative minimum tax, so this change may not have a significant impact.

 

Home Mortgage Interest:

If your mortgage or home equity loan originated before December 16, 2017, you can still deduct the interest on up to $1,000,000 in qualifying debt ($500,000 if you are married filing separately). If your loan originated after that date the limit is $750,000 (or $375,000). Qualifying debt is borrowing used to buy, build, or substantially improve the taxpayer's main home and a second home, and secured by the property. The interest on a home equity loan used for other personal purposes, such as paying credit card debts, is no longer deductible.  It is generally allowable to refinance a preexisting debt, however the interest is only deductible for the term of the original debt.

 

Miscellaneous Itemized Deductions:

Miscellaneous itemized deductions that were subject to the 2% threshold will no longer be deductible.  This includes all unreimbursed employee business expenses, investment fees and expenses, tax preparation fees, and hobby loss expenses.

 

Moving Expenses:

Moving expenses are no longer deductible except for members of the armed forces who are on active duty and move pursuant to a military order due to a permanent change in station.

 

Casualty Losses:

Personal casualty and theft losses are no longer deductible unless they are attributable to a federally declared disaster.

 

Charitable Contributions:

With the changes in itemized deductions, fewer taxpayers will receive a tax benefit for making charitable contributions.  However, taxpayers who have reached age 70 1/2 are allowed to make tax-free transfers of up to $100,000 from their IRAs directly to a qualified charity and have it count toward their required minimum distribution.  This has the additional benefit of also reducing Connecticut income taxes. Transfers to private foundations or donor advised funds do not qualify.

 

Personal Exemptions:

Personal exemptions for taxpayers and dependents are eliminated entirely.

 

Tax Rates:

Tax rates have been reduced for 2018.  For example, in 2017 taxpayers filing as married on a joint return had a 28% rate bracket that ended at taxable income of $233,350, in 2018 the rate will be 24% up to $315,000 of taxable income.  The 15% tax bracket has been reduced to 12%.  The joint and single brackets have been adjusted so that the "marriage penalty" won't apply until after $400,000 of income.  This may not result in bigger refunds, however, because the new withholding tables for 2018 are based on the lower tax rates.

 

Tax Credits:

The tax credit for a Qualifying Child under age 17 increases from $1,000 to $2,000.  There is a new Family Tax Credit of $500 for each dependent other than a Qualifying Child.  A child age 17 or older could be a qualifying dependent for this credit.  The start of the phase-out for these credits has increased to taxable income of $400,000 on a joint return, so more families will be able to take advantage of them.


Section 529 Plans:
Distributions of up to $10,000 from a Section 529 qualified tuition plan may now be used to pay for tuition at a public, private, or religious elementary or secondary school. Unused amounts in a 529 plan can be transferred to an ABLE account to benefit qualified beneficiaries who are disabled or blind.

 

Kiddie Taxes:

A child with unearned income is no longer subject to being taxed at the parent's tax rate, but instead will be taxed using the tax rate schedule for estates and trusts.  Which children are subject to the tax remains unchanged.

 

Alimony:

Alimony and separate maintenance payments will no longer be deductible and the recipient will no longer be required to report the payments as income.  This provision is effective for any divorce or separation instrument executed after 2018.

 

Some of these changes will automatically be eliminated in the future, but all are subject to change by the government.

 

Health Care Coverage

Reporting Still In Effect

 

The reporting requirements for health care coverage is still in effect for 2018 and the IRS will not consider a return complete if you do not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment. After 2018, however, the shared responsibility payment is reduced to zero.

 

 

A word of caution: this is a very brief summary and does not include all of the details that may impact your individual situation. Please contact us if you would like more information.

 

 

About Lewitz, Balosie, Wollack, 

Rayner & Giroux, LLC

 

We provide accounting, tax, and financial services to individuals, businesses, nonprofit organizations, estates, and trusts.  Our services include tax return preparation, software consulting, and compilations, reviews, and audits of financial statements.  We have been located in the shoreline community of Old Saybrook, Connecticut for over 50 years.  Feel free to contact us if we can be of service.  We can be reached at 860-388-4451.

 

** Thank you Chuck Fitzgerald for the use of this photograph. 

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