The 2018 TCJA (Tax Cuts and Jobs Act) changes many items from prior years tax reporting. A few of the significant changes are:
1. New tax forms and schedules: Page 1 and 2 of Form 1040 has been consolidated down to postage card size (on standard size paper). This savings in number of line items resulted in an increase in the number of supporting schedules. For 2018, the taxpayer may be required to use several forms, each feeding into the next, which was previously recorded on a single line.
2. Standard Deduction: it has been increased to $24,000 + $1,300 each if over 65 years old. Personal exemptions have been eliminated for 2018 and are now included as part of the Standard Deduction.
3. Itemized Deductions: Itemized includes: Medical in excess of 7.5% of AGI + State and Local taxes (limited to $10,000) + Mortgage Interest + Gifts to Charity. If this exceeds the Standard Deduction of $24,000, the overage will be tax deductible. For those who rent or have State taxes below the $10,000 limit, please know that charitable deductions may not be deductible as the $24,000 limit (which includes Charity) has not been reached.
4. Medical: Obamacare – there is still a penalty for not having health insurance for 2018 (repealed for 2019). The Health Premium Credit is still available for those who are not on Medicare. These credits phase out starting with married incomes of $25,000. Long-term-care premiums are considered a medical expense. Taxpayers who are age 71 can write off premiums up to $5,110. Self-employed can deduct up to the dollar limit without regard to the 7.5% AGI limit on their Schedule C.
5. Miscellaneous itemized deductions have been repealed for 2018. They included employee business expenses, investment management fees, tax preparation, job search, tuition, travel expense and safe deposit fees.
6. 20% deduction for QBI (Qualified Business Income): for 2018, 20% of business income is now deductible for all pass-through businesses up to QBI of $315,000. Above this level various restrictions and computations apply, such as W2 wages, type of business (service) and qualified property.
7. Capital Gains tax rate of 15% for incomes up to $479,000 and 20% thereafter.
8. AMT (Alternative Minimum Tax): The AMT exemption for married couples increased from $84,500 to $109,400. This 26% / 28% AMT tax generally starts for incomes above $250,000 depending upon the circumstances.
9. IRA Contribution limits stayed at $5,500 + $1,000 for those 50 and over.
10. Payroll: the 2018 wage base is $128,400 for Social Security tax (up to $132,900 in 2019). In addition, there is a .9% Medicare surtax on wages that exceed $250,000.
11. Auto mile deduction for 2018: $.545 for business miles (Schedules C & E), $.18 for medical and $.14 for Charity.
Many tax deductions and exemptions are “phased-out” at higher income levels. Tax planning may save on taxes to shift income, deductions or dependencies. Please call our office as to specific phase-outs or any general questions you may have.
Office of David J. Felsing, CPA
Copyright © 2018 David J. Felsing, CPA - All Rights Reserved.