The 2018 Tax Form and How it May Affect You

By John B. Kennedy

The new tax bill  became law in late December, 2017,  and went into effect January 1, 2018. Here is a recap of some of the changes.  

INDIVIDUAL INCOME TAXES

*There are seven tax brackets at 10, 12, 22, 24, 32, 35, 37 percent.  The 37% tax rate applies to married couples with taxable income of $600,000 and above and for a single filer if it applies at $500,000 and above.  

*The standard deduction is $24,000 for a married couple and $12,000 for a single taxpayer and $18,000 for head of household.  

*The child tax credit has increased to $2000 per child and begins to phase out for couples making more than $400,000.  The refundable portion of the credit is limited to $1,400 per child.  

*Personal exemptions are repealed.

*Itemized deductions for state and local income tax, real estate taxes and personal property taxes are itemized to a total of $10,000.

*Mortgage interest for loan beginning on or after 12/15/17 are limited to new mortgage on principal residence or second home with a limit of $750,000.  The home equity loan deduction is no longer allowed.  

*Medical expenses in excess of 7.5% of adjusted gross income will be allowed for 2017 and 2018.  After 2018, the threshold will be amounts in excess of 10%.

*Miscellaneous itemized deductions will be disallowed.

*The Alternative Minimum Tax exemption for married couples will be phased out at $1,000,000 and for single filers at $500,000.

*Alimony income / deductions are to be phased out for divorce or separation agreements dated after 12/31/18.

*The moving expense deduction would be repealed except for certain members of the military.

*There is no penalty for taxpayers who do not obtain health insurance that provides minimum essential coverage.  

*Pass through income for business income from partnerships, S corporations, sole proprietors, REITs, and certain publicly traded partnerships have preferred treatment in some cases.

*The bill will allow distributions for the 529 education plan of no more than $10,000 of tuition expenses per student for attendance at an elementary or secondary school.  

INDIVIDUAL INCOME TAX PLANNING TIPS

*You may want to make payment for your 2017 real estate, personal property, or income taxes in 2017 if you are not subject to Alternative Minimum Tax and/or you believe that you will not itemize your deductions in 2018.

*You may want to accelerate your charitable contributions in 2017 if you will be using the standard deduction in 2018.

CORPORATE INCOME TAXES

*The corporate income tax rates for a C Corporation will be 21% beginning in 2018.  The PSC (Personal Service Corporation) rate will be 21%.

*Section 179 expensing election limit will be $1,000,000 and begins to phase out at $2,500,000.

*The bonus depreciation was increased to 100% for additions after 9/27/17 and before 1/1/23.  It includes used property as long as it is “new” to the buyer.

*Luxury auto depreciation has been increased to $10,000 for the first year placed in service, $16,000 for the second year,  $9,600 for the third year and $5,760 for all subsequent years.

*Most net operating losses will not be allowed to be carried back and must be carried forward.  This applies to tax years subsequent to 2017.  Also, the amount allowed in any year will be up to 80% of that years taxable income.  The remaining loss may be carried forward indefinitely.  

*Small business definition is set at $25 million in gross annual receipts with respect to cash basis taxpayers as defined by Section 263A (Uniform Cost Capitalization rules for inventory).

*The deduction for meals and entertainment is disallowed in years after 12/31/17.  However, 50% of employee meals for travel is still allowed.  

OTHER ITEMS OF NOTE:

*Estate tax exemption has nearly doubled beginning in 2018.

*The annual gifting limitation is $15,000 per person per year beginning in 2018.

*The business mileage rate for 2018 has been set at 54.5 cents per mile.  Charity mileage rate remains at 14 cents per mile, and medical mileage is 18 cents per mile.  

*The 401K contribution limit for 2018 is $18,500 and the catch up provision is an additional $6,000 for those over age 50.

*The 2018 social security wages base limit is $128,400.

John B. Kennedy is a local tax consultant whose office is at 312 E. Woodbridge Ln. For more information on taxes, you can contact him at 816-942-6190 or jbkennedy@sbcglobal.net.