NEW TAX LAWS GOING INTO EFFECT IN 2018, WILL BE REFLECTED ON RETURNS FILED IN 2019.

The Tax Cuts and Jobs Act of 2017

A recent Money/CNN article did a great job listing the facts about the new tax law going into effect in 2018. Please scroll down below to READ this FULL ARTICLE...

Here is a brief synopsis of the article covering some of the points that most of my clients will be asking about.

The standard deduction has essentially doubled to $24,000 for married filing joint, $12,000 for single filers or married filing separate, and $18,000 for head of household filers.  Although the allowance for personal exemptions are now gone, taxpayers with children under 17 should still see a tax savings as the child tax credit has increased to $2000 in 2018, versus $1000 currently.  Please see this new table:

In 2018, the credit will be available to far more households, thanks to a massive raise in the phaseout thresholds. Here's a quick guide to the Child Tax Credit phaseout thresholds for 2018.  AGI means Adjusted Gross Income (basically your total income). In previous tax years, the credit has only been available for low- to middle-income households. For instance, the credit began to disappear in 2017 for married couples who earned more than $110,000 and for single filers with AGI above $75,000.

Tax Filing Status	Maximum AGI for Full Credit	AGI Where Credit Disappears
Single	$200,000	Over $240,000
Married filing jointly	$400,000	Over $440,000
Head of household	$200,000	Over $240,000
Married filing separately	$200,000	Over $240,000

DATA SOURCE: GOP TAX REFORM BILL.

 I believe I should explain a few things here--the standard deduction is what the IRS gives you for your filing status--married, single, head or household, widow/widower.  It does not take into account how many children you have.  People that have itemized deductions OVER the standard amount file a Schedule A showing those deductions (mortgage interest, taxes, charity, etc.).  Therefore, with a $24,000 standard deduction, a lot more folks will not be able to itemize.  Now do NOT think you are getting hosed here--you get the larger of the itemized or standard deduction.  I do check the itemized deductions just to make sure my clients get the larger deduction.  It’s just hard for folks to understand that they are not deducting their mortgage interest, charity, etc.

 Before this new law (going into effect in 2018, for filing in 2019), folks get a personal exemption of 4050 per person on their tax return.  A family of 6 (4 kids, 2 parents) would get $24,300.  Now if the kids are all over 17, these folks will be quite unhappy with the new tax law.  Prior to the new tax law, they were deducting $12,700 (standard deduction 2017) PLUS the $24,300 mentioned above.  Now all they can deduct is the $24,000.   However, if the kids are not over 17, then each one would potentially qualify for the child tax credit. which has been increased from $1,000 to $2,000 per qualifying child under the new tax plan.  This should offset the loss of the personal exemption.  They are also putting into place a new tax credit for non-child dependents (elderly parents, kids over 17, adult disabled children, etc.).  This temporary credit is $500 per qualifying dependent.

However, some things have been eliminated:

Moving expenses (regardless of reason, other than military) have been eliminated.  However, if your employer reimburses you, it’s income!

Alimony payments for divorces/separations after 12-31-18 will not be able to be deducted.  Alimony income will now be exempt from tax.

The health insurance penalty has been eliminated, but will not go into effect until 2019.

Those of you who are deducting employee business expenses such as mileage will no longer be able to do so.  This will hurt if you do not get totally reimbursed by your employer.  Many employers do not pay the full amount allowed by the government.  

For Businesses:

You will be able to section 179 (write off) 100 percent of any asset purchased (except a structure) if you choose to do so.  Also, this asset does not have to be NEW, can be a used asset--such as a computer.  All that matters are when you first use that asset in your business.  Those of you with rental property will be glad to know that now you can expense off roofs, HVAC, appliances, furnishings, etc.

The corporate rate has been cut from 35% to 21%, starting in 2018.  Perhaps we will see some corporations coming back to USA??

Pass-through Income--Basically any business person, other than a regular C-Corporation, has pass through income.  It is income that is taxed at the owner/shareholder level--not the corporate level (as in a C-Corporation).  So far it seems that we will be able to deduct 20 percent of our net profits as a deduction, if the total taxable income (including your spouse’s) is under $315K, or $157K if single.  For example, Lucy and Ricky, filing MFJ, have $200K in W2's for Ricky and interest income.  Lucy has a sole proprietorship business where she netted $50K.  She can deduct 20 percent off that $50K and pay taxes on the resulting $40K instead of the original $50K.  Note this is a deduction from income tax only, not social security tax.  She will pay social security tax on the full $50K.

Now if their joint total taxable income is over $315K, she is subject to the requirements that her business must not be a service provider--law, accounting, health, science, arts, consulting, financial services, investment, etc.  So if she is a tax preparer like me, she does not qualify for the pass through deduction if both her and Ricky's income is over the $315K limit.  However if she is a non-service provider, an engineer, or an architect (I guess the IRS liked those categories) she is okay so far, but she has some more hoops to get over--her deduction is limited to the greater of 50 percent of wages she paid her employees or 25 percent of the wages plus 2.5% of the purchase price of depreciable business property.  Obviously several computations must be made in this scenario. 

This is one of the areas the IRS has not really finalized yet, so this information is subject to change.  I am trying to keep up with this as it affects most of my clients (including me!).  

Ready to "file on a postcard" yet?   HA. 

Here is the Full Article:

34 things you need to know about the incoming tax law

by Julia Horowitz   @juliakhorowitzDecember 26, 2017: 9:59 AM ET
It's official. Congress has ushered through the first major tax overhaul since Ronald Reagan was president.

The measure, which President Trump signed into law on Friday, is about to shake up life for millions of Americans. It will redistribute the country's wealth. It could sway decisions about whether to buy a home, or where to send kids to school. It could even affect when unhappy couples decide to get a divorce.

1. This is the first significant reform of the U.S. tax code since 1986.

Reagan signed major legislation for corporations and individuals in 1986. Since then, serious tax reform has eluded Republicans, though they repeatedly called for it as the tax code became longer and more arcane.

2. Changes have been made to both individual and corporate tax rates.

Individual provisions in the new legislation technically expire by the end of 2025, though some people expect that a future Congress won't actually let them lapse. Most of the corporate provisions are permanent.

3. Tax reform will increase deficits by $1.46 trillion over the next decade.

That's the net number that's been crunched by the nonpartisan Joint Committee on Taxation. The future law's contribution to the debt will likely be even higher if individual tax cuts are re-upped in eight years.

4. There are still seven tax brackets for individuals, but the rates have changed.

Americans will continue to be placed in one of seven tax brackets based on their income. But the rates for some of these brackets have been lowered. The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Find out where you fit here.

5. The standard deduction has essentially been doubled.

Republicans want fewer people to itemize their taxes. To achieve this, they've nearly doubled the standard deduction. For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, it's increased from $12,700 to $24,000.

6. The personal exemption is gone.

Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income. No longer. For some families, the elimination of the personal exemption will reduce or negate the tax relief they get from other parts of the reform package.

7. The state and local tax deduction now has a cap.

The state and local tax deduction, or SALT, remains in place for those who itemize their taxes -- but now there's a $10,000 cap. Previously, filers could deduct an unlimited amount for state and local property taxes, plus income or sales taxes.

8. The child tax credit has been expanded.

The child tax credit has doubled to $2,000 for children under 17. It's also now available, in full, to more people. The entire credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000.

9. There's a new tax credit for non-child dependents, like elderly parents.

Taxpayers may now claim a $500 temporary credit for non-child dependents. This can apply to a number of people adults support, such as children over age 17, elderly parents or adult children with a disability.

10. Fewer people will have to deal with the alternative minimum tax.

The alternative minimum tax, a parallel tax system that ensures people who receive a lot of tax breaks still pay some federal income taxes, remains in place for individuals. But fewer people will have to worry about calculating their tax liability under the AMT moving forward. The exemption has been raised to $70,300 for singles, and to $109,400 for married couples.

11. And the mortgage interest deduction has been lowered.

Current homeowners are in the clear. But from now on, anyone buying a new home will only be able to deduct the first $750,000 of their mortgage debt. That's down from $1 million. This is likely to affect people looking for homes in more expensive coastal regions.

12. None of this will affect your 2017 taxes.

Americans won't need to worry about these changes when they start filing their 2017 tax returns in about a month. The new laws will first be applied to 2018 taxes.

13. By the way, you can still deduct student loan interest.

The deduction for student loan interest, which is up to $2,500 per year, is safe.

14. You can still deduct medical expenses.

The deduction for medical expenses wasn't cut. In fact, it's been expanded for two years. In that time, filers can deduct medical expenses that add up to more than 7.5% of adjusted gross income. In the past, the threshold for most Americans was 10% of adjusted gross income.

15. If you're a teacher, you can still deduct classroom supplies.

The deduction for teachers who spend their own money on school supplies was left alone. Educators can continue to deduct up to $250 to offset what they spend on classroom materials.

16. The electric car tax credit lives on.

Drivers of plug-in electric vehicles can still claim a credit of up to $7,500. Just as before, the full amount is good only on the first 200,000 electric cars sold by each automaker. GM, Nissan and Tesla are expected to reach that number some time next year.

17. Home sellers who turn a profit keep their tax break.

Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains, so long as they're selling their primary home and have lived there for two of the past five years.

18. 529 savings accounts can be used in new ways.

In the past, funds invested in 529 savings accounts wasn't taxed -- but it could only be used for college expenses. Now, up to $10,000 can be distributed annually to cover the cost of sending a child to a "public, private or religious elementary or secondary school." This change is a win for Education Secretary Betsy DeVos.

19. And tuition waivers for grad students remain tax-free.

Graduate students still won't have to pay income taxes on the tuition waiver they get from their schools. Such waivers are typically awarded to teaching and research assistants.

20. But say goodbye to the tax deduction for alimony payments.

Alimony payments, which are codified in divorce agreements and go to the ex-spouse who earns less money, are no longer deductible for the person who writes the checks. This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018.

21. The deduction for moving expenses is also gone ...

There may be some exceptions for members of the military. But most people will no longer be able to deduct the cost of their U-Haul when they move for work.

22. As is the tax preparation deduction ...

Before tax reform passed, people could deduct the cost of having their taxes prepared by a professional, or the money they spent on tax prep software. That break has been eliminated.

23. ... The disaster deduction ...

Losses sustained due to a fire, storm, shipwreck or theft that aren't covered by insurance used to be deductible, assuming they exceeded 10% of adjusted gross income. But now through 2025, people can only claim that deduction if they've been affected by an official national disaster. That would make someone whose house was destroyed by a California wildfire potentially eligible for some relief, while disqualifying the victim of a random house fire.

24. ... And the reimbursement for bicycle commuters.

The tax code used to let you to knock off up to $20 from your income per month for the costs of bicycle commuting to work, assuming you weren't enrolled in a commuter benefit program. That's gone.

25. Almost everyone is now exempt from the estate tax.

Before tax reform, few estates were subject to the estate tax, which applies to the transfer of property after someone dies. Now, even fewer people have to deal with it. The amount of money exempt from the tax -- previously set at $5.49 million for individuals, and at $10.98 million for married couples -- has been doubled.

26. Adjustments for inflation will be slower.

The new legislation uses "chained CPI" to measure inflation. It's a slower measure than what was used before. Over time, that will raise more money for the federal government, but deductions, credits and exemptions will be worth less.

27. Oh, and the individual mandate on health insurance has been scrapped.

Republicans failed to repeal Obamacare earlier this year, but they managed to get rid of one of the health law's key provisions with tax reform. The elimination of the individual mandate, which penalizes people who do not have health care, goes into effect in 2019. The Congressional Budget Office has predicted that as a result, 13 million fewer people will have insurance coverage by 2027, and premiums will go up by about 10% most years.

28. You won't be able to file your tax return on a postcard.

Trump said H&R Block would go out of business after tax reform because filing taxes would become so simple. Not quite. While doubling the standard deduction will ease the process for some individuals, there's still a web of deductions and credits to work through. And for small businesses, filing could become even more complicated.

29. The corporate tax rate is coming down.

The corporate tax rate has been cut from 35% to 21% starting next year. The alternative minimum tax for corporations has been thrown out altogether. Earnings are expected to go up as a result.

30. Pass-through entities will also get a break.

The tax burden by owners, partners and shareholders of S-corporations, LLCs and partnerships -- who pay their share of the business' taxes through their individual tax returns -- has been lowered via a 20% deduction. The legislation includes a rule to ensure owners don't game the system, but tax experts remain concerned about abuse of this provision.

31. Not all CEOs think they'll use their savings to create jobs, though.

Just 14% of CEOs surveyed by Yale University said their companies plan to make large, immediate capital investments in the United States following tax reform. Capital investments, like building plants and upgrading equipment, can spur hiring.

32. Plus, the way multinational corporations are taxed is about to change.

The U.S. is switching to a territorial system of taxation, which means companies won't owe federal taxes on income they make offshore. To help the transition, companies will be required to pay a one-time, low tax rate on their existing overseas profits -- 15.5% on cash assets and 8% on non-cash assets, like equipment in which profits were invested.

33. By the way, there's a provision to rein in executive pay at nonprofits.

The legislation includes a new 21% excise tax on nonprofit employers for salaries they pay out above $1 million. That may mean some well-paid executives at nonprofits take a pay cut.

34. Businesses won't be able to write off sexual harassment settlements.

New Jersey Democratic Senator Bob Menendez's amendment born of the #MeToo momentmade it all the way through. Companies can no longer deduct any settlements, payouts or attorney's fees related to sexual harassment if the payments are subject to non-disclosure agreements.

-- With contributions from Jeanne Sahadi, Kathryn Vasel, Tami Luhby, Anna Bahney, Jackie Wattles, Katie Lobosco, Lydia DePillis and Matt Egan.

CNNMoney (New York)First published December 20, 2017: 4:56 PM ET