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Some key changes under The Tax Cut and Jobs Act that may affect your 2018 tax return...

Jan 2019
Julianna Donovan

Here is a quick recap of some key changes under The Tax Cut and Jobs Act that may affect your 2018 tax return:

  • There are still seven federal income tax brackets; however, the top marginal rate drops from 39.6% to 37% and the income levels to which the rates apply have been expanded.
  • The deduction for state and local taxes is now capped at $10,000 ($5,000 for married filing separately) for any combination of state and local income taxes, property taxes and sales taxes.
  • Personal and dependent exemptions have been eliminated and the standard deduction rises to $12,000 for single filers, $18,000 for heads of households and $24,000 for joint filers. Unless you have substantial charitable contributions and medical expenses, you may find that you use the standard deduction rather than itemized deductions.
  • All miscellaneous itemized deductions subject to 2% of adjusted gross income (AGI) have now been eliminated with the exception of military job-related moves.
  • The child tax credit doubled to $2,000 for each dependent under age 17.
  • For any mortgages incurred after December 14, 2017, interest is only deductible for loan amounts up to $750,000 (for married filing jointly). Older mortgages are still subject to the $1 million cap.
  • Interest paid on home equity lines of credit (up to $100,000) is no longer deductible unless the funds were used to buy, build or substantially improve your home.
  • The medical expense deduction threshold has been lowered to 7.5% of adjusted gross income (AGI). Qualified medical expenses remain the same.
  • The exemptions for alternative minimum tax (AMT) have been substantially increased, thereby reducing the number of taxpayers affected by AMT.
  • The kiddie tax is much harsher. Levied on the portions of your child’s unearned income beyond $2,100 (for 2018), this tax is based on trust and estate brackets, which are taxed at the highest marginal rate of 37% once taxable income exceeds $12,500.
  • 529 Plans have been expanded to include elementary and secondary school tuition up to $10,000 per student per year.
  • The AGI limit on cash contributions to public charities and certain private foundations has been raised from 50 to 60%. There is no longer a charitable deduction allowed for college athletic event seating rights.
  • Alimony for post-2018 divorce decrees is no longer deductible to the payer or taxable to the recipient.

Finally, you may want to consider withholding taxes from your Required Minimum Distribution. Are you receiving a Required Minimum Distribution and looking for a way to ease the burden of paying quarterly tax estimates? You may want to consider having tax withheld from the IRA payments you receive. The withholding can be done evenly on each payment or if you do not need the money for living needs, wait until December to take your RMD and ask us or your CPA to withhold the appropriate amount. One advantage is that taxes withheld from IRA distributions are considered paid evenly throughout the year, even if made in a lump sum payment at year-end. If your RMD is large enough to cover your entire tax bill, you can keep your assets invested in the IRA for most of the year, avoid withholding on other sources of retirement income, skip quarterly estimates and still avoid the underpayment penalty.

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