How it will affect filing your 2018 tax return
The filing of your 2018 tax return will be completely different from previous years with the changes made in the Tax Cuts and Jobs Act of 2017. It will cause some taxpayers to pay more tax than previously and some other taxpayers that will pay less. It will be interesting to see the results after the filing season in April 2019. Here are some of the items of which you should be aware.
The standard deduction is $12,000 for single/married filing separately and $24,000 for married filing jointly. This is an increase of $5,500 and $11,000, respectively, from previous law. The head of household standard deduction will be $18,000 compared to $9,550.
An additional standard deduction for the aged and blind is $1,300.
The personal exemption has been eliminated with the tax reform bill. The personal exemption was $4,150 per individual and dependent. This will affect some taxpayers, especially if your itemized deductions are over the standard deductions.
State and local taxes are limited to $10,000 for both income and property taxes paid during the year on your itemized deductions. This will affect many taxpayers across the country and will be interesting to see the tax increase it will cause. Hopefully, the lower tax brackets will offset the lost deduction when it is over $10,000.
The Child Tax Credit has been raised to $2,000 per qualifying child, those who are under 17. The credit was $1,000 per qualifying child. There is a $500 credit available for dependents who do not get the $2,000 credit. This will help offset the personal exemption loss on dependents.
The Earned Income Credit maximum is $6,431 for taxpayers filing jointly and have three or more qualifying children.
The mortgage interest deduction is capped at $750,000 on a loan balance taken out after Dec. 15, 2017. The $1 million loan balance still applies for mortgages taken out before Dec. 15, 2017.
The Adoption Credit is available up to $13,810 for qualifying adoption expenses. There is a phase out that applies when modified adjusted gross income is over $207,140.
The charitable donations limit for cash has increased from 50 percent of AGI to 60 percent of AGI.
The student loan interest deduction remains at $2,500. The jobs expense and miscellaneous deductions subject to 2 percent of your AGI have been eliminated. This includes unreimbursed job expense, mileage, tax preparation fees, etc.
The tax brackets are as follows:
The estate tax exemption doubles to $11.2 million per individual and $22.4 million per couple in 2018. This will allow estate planning some increase limits to plan to transfer substantial amounts of assets to beneficiaries without federal estate tax consequences.
The 20 percent pass-through deduction will also benefit many taxpayers. There is a provision for Specified Service Businesses, which includes accountants, lawyers, doctors, etc., that have income limitation phase out for the 20 percent deduction. If married and income is over $415,000 or single and income is over $207,500 and you are one of the Specified Service Businesses, you will not be entitled to the 20 percent pass-through deduction.
For all other pass through businesses that are over the income limits established, the deduction might be lower than the 20 percent of pass-through income based on the following two calculations (use the greater of the two).
- 50 percent of allocable W-2 wages paid by your business
- 25 percent of allocable W-2 wages plus 2.5 percent of a taxpayer’s allocable share of the unadjusted tax basis of the qualified business property immediately after acquisition (tangible property subject to depreciation)
So, if the greater of the two calculations is less than the 20 percent of pass-through income, then your deduction would be the lesser amount. Also, the deduction can’t exceed 20 percent of adjusted taxable income. It is not as easy as just taking 20 percent of the pass-through income for a deduction and going on.
The C-Corporation tax rate was lowered to 21 percent, which will help all those companies that did not change to Sub-S, partnership, etc.
There are numerous changes for the upcoming filing season for 2018. The new tax law also contains considerable exception, only a few of which are highlighted in this article. Please contact WEDA or your CPA for professional advice. Hopefully, you will save on your tax liability.
Article Written By Curt Kleoppel
CURT KLEOPPEL, CPA, CVA, is the treasurer of the Western Equipment Dealers Association. He also serves as president of Equipment Dealer Consulting, LLC, a long-term association partner. The consulting group was created to provide financial services to association members. For information, visit www.eqdealerconsulting.com or write to curt@ westerneda.com.