The Tax Cuts and Jobs Act (TCJA) are intended to make permanent the individual and small-business tax cuts, make it easier for familes and businesses to save for retirement, and boost American innovation by growing startup businesses, according to Ways and Means Chair Kevin Brady, R-Texas
At Ahura Group, we wanted to provide our clients with an easy way to show some of the changes that were made. In order to take full benefit, please visit our Individual Tax Services or Business Tax Services page to request a checklist and schedule an appointment so we can help you in your Tax Planning.
529 College Savings Plans
Could only be used on qualified higher education expenses.
You can now use 529 savings for private K-12 schooling.
Tax benefits are now extended to eligible education expenses for an elementary or secondary public, private, or religious school.
The new rules allow you to withdraw up to $10,000 a year per student (child) for education costs.
ACA Individual Mandate
Consumers who did not qualify for an exemption and chose not to purchase insurance faced a range of tax penalties, depending on income.
The individual mandate is out.
Starting Jan. 1, 2019, consumers who do not purchase health insurance will no longer face penalties.
The individual paying alimony or maintenance payments can deduct payments from their income. The person receiving the payments includes them as income.
The person making alimony or maintenance payments DOES NOT get to deduct them, and the recipient does not claim the payments as income. This goes into effect for any divorce or separation agreement signed or modified on or after Jan. 1, 2019.
Alternative Minimum Tax
The exemption amount is $84,500 for married joint-filing couples, $54,300 for single filers and $42,250 for married couples filing separately.
The AMT exemption begins to phase out at $120,700 for singles, $160,900 for married couples filing jointly and $80,450 for married couples filing separately.
Under the new rules, which are in effect from Jan. 1, 2018 through Dec. 31, 2025, married couples filing jointly will be exempt from the alternative minimum tax starting at $109,400. Exemption starts at $70,300 for all other taxpayers (other than estates and trusts).
The exemption phase-out thresholds will rise to $1,000,000 for married couples filing jointly, and $500,000 for all other taxpayers.
Taxpayers can exclude up to $20 a month of qualified bicycle commuting reimbursements from their gross income. That includes payments from employers for things like a bicycle purchase, bike maintenance or storage. Workers can claim the exclusion in any month they regularly use a bicycle to commute to work and do not receive other transit benefits.
The exclusion is suspended through 2025.
Child Tax Credit
The current child tax credit is $1,000 per child under the age of 17.
The credit is reduced by $50 for each $1,000 a taxpayer earns over certain thresholds. The phase-out thresholds start at a modified adjusted gross income (AGI) over $75,000 for single individuals and heads of household, $110,000 for married couples filing jointly and $55,000 for married couples filing separately.
The child tax credit doubles to $2,000 per qualifying child. Up to $1,400 of the child tax credit can be received as refundable credit (meaning it can go toward a tax refund). The new rule also includes a $500 nonrefundable credit per dependent other than a qualifying child.
The credit begins to phase out at an AGI over $200,000 — for married couples, the phase-out starts at an AGI over $400,000.
This rule is in effect through 2025.
Under a four-step graduated rate structure, the current top corporate tax rate is 35% on taxable income greater than $10 million.
Permanently cuts the top corporate tax rate to 21%.
Estates up to $5.49 million in value were exempt from the tax.
The top tax rate was 40%.
Doubles the exemption for the estate tax.
Now, estates up to $11.2 million are exempt from the tax.
Gains Made on Home Sales
Homeowners can exclude up to $250,000 (or $500,000, if married filing jointly) of gains made when selling their primary residence, as long as they owned and primarily lived in the home for at least two of the five years before the sale. The exclusion can be claimed only once in a two-year period.
Homeowners can still exclude gains up to $250,000 (or $500,000 if married filing jointly) when they sell their primary residence, but they have to have lived there longer. People who sell their homes after Dec. 31, 2017 now have to use the home as their primary residence for five of the eight years before the sale in order to claim the exclusion. It can only be claimed once in a five-year period.
The new rule expires on Dec. 31, 2025.
Taxpayers were previously allowed to deduct out-of-pocket medical expenses that exceed 10% of their adjusted gross income or 7.5% if they or their spouse were 65 or older.
The threshold for all taxpayers to claim an itemized deduction for medical expenses is lowered to 7.5% of a filer’s adjusted gross income.
The change applies to taxable years from Dec. 31, 2016 to Jan. 1, 2019.
Miscellaneous Tax Deductions
TAX PREPARATION: Taxpayers can today claim an itemized deduction of the amount of money they pay for tax-related expenses, like the person who prepares their taxes or any software purchased pr fees paid to fee to file forms electronically.
WORK-RELATED EXPENSES: Under current law, workers can deduct unreimbursed business expense as an itemized deduction, like the cost of a home office, job-search costs, professional license fees and more.
INVESTMENT FEES: Taxpayers can currently deduct fees paid to advisors and brokers to manage their money.
TAX PREPARATION: Taxpayers may NOT claim tax-preparation expenses as an itemized deduction through 2025.
WORK-RELATED EXPENSES: The bill suspends work-related expenses as an itemized deduction through 2025.
INVESTMENT FEES: Under the new rules, the investment fee deduction is suspended until 2025.
Mortgage & Home Equity Loan Interest Deduction
Currently homeowners are allowed to deduct interest paid on mortgages valued up to $1 million on a taxpayer’s principal residence and one other qualified residence.
They can also deduct interest paid on a home equity loan or home equity line of credit no greater than $100,000. These are itemized deductions.
New homeowners can include mortgage interest paid on up to $750,000 of principal value on a new home in their itemized deductions.
The old, $1 million caps continues to apply to current homeowners (those who took out their mortgages on or before Dec. 15, 2017), as well as refinancing on mortgages taken out on or before Dec. 15, 2017, as long as new mortgage amount does not exceed the amount of debt being refinanced.
Homeowners CAN deduct interest paid on a home equity line of credit or home equity loan, so long as the loan was used to buy, build or substantially improve your home.
These changes are set to expire after 2025.
Current law allows taxpayers to deduct moving expenses as long as the move is of a certain distance from the taxpayer’s previous home and the job in the new location is full-time.
The new tax bill suspends the moving expense deduction through 2025. Until then, taxpayers are NOT permitted to deduct moving expenses.
Moving-related deductions and exclusions remain in place for members of the military.
Pass-through businesses are generally small businesses (also some big firms) that don’t pay the corporate income tax. Instead, the owners report the corporate profits as their own income and pay taxes based on the individual tax rates along with their regular personal income tax.
Some of the common types of pass-through businesses are partnerships, LLCs (limited liability companies), S corporations and sole proprietorships.
All pass-through business owners’ income was previously subject to regular personal income tax.
Under the new laws, pass-through business owners can deduct up to 20% of their qualified business income from a partnership, S corporation or sole proprietorship.
Individuals earning $157,500 and married couples earning $315,000 are eligible for the fullest deduction.
Personal Casualty or Theft
Under current tax law individuals can deduct uninsured losses above $100 when property is lost to a fire, shipwreck, flood, storm, earthquake or other natural disaster. The deduction is allowed as long as the total loss amounts to greater than 10 percent of the taxpayer’s adjusted gross income.
The new tax bill ONLY allows taxpayers to claim the deduction if the loss occurred during a federally declared disaster, through 2025.
Taxpayers can reduce their adjusted gross income by claiming personal exemptions — generally for the taxpayer, their spouse and their dependents.
Taxpayers could deduct $4,050 per exemption in 2017, though the deduction is phased out for taxpayers earning more than certain AGI thresholds. The phase out begins at an AGI over $313,800 for married couples filing jointly, $287,650 for heads of household, $156,900 for married couples filing separately and $261,500 for all other taxpayers.
Personal exemptions have been suspended through 2025.
Taxpayers who do not itemize can claim the current standard deduction of $6,350 for single individuals, $9,350 for heads of household or $12,700 for married couples filing jointly
Standard deductions for all nearly double under the new rules.
Individuals see standard deductions rise to $12,000; forlim heads of household, it rises to $18,000; and for married couples filing jointly the standard deduction increases to $24,000.
State and Local Tax (SALT) Deduction
Taxpayers may include state and local property, income and sales taxes as itemized deductions.
Taxpayers are limited to claiming an itemized deduction of $10,000 in combined state and local income, sales and property taxes, starting in 2018 through 2025.
Taxpayers CANNOT get around these limits by prepaying 2018 state and local income taxes while it is still 2017. The bill says nothing about prepaying 2018 property taxes.
Student Loan Debt Discharge
Currently, student loan debt discharged due to death or disability is taxed as income.
Under the new tax bill, student loan debt discharged due to death or disability after Dec. 31, 2017, will NOT be taxed as income. The rule lasts through 2025.
Tax Brackets & Income Taxes
There are currently seven tax brackets.
The rate on the highest earners is 39.6% for taxpayers earning above $418,400 for individuals and $470,700 for married couples filing taxes jointly.
The new rules retain seven tax brackets, but the brackets have been modified to lower most individual income tax rates. The new brackets expire in 2027.
Top income earners — above $500,000 for individuals and above $600,000 for married couples filing jointly — falls from 39.6 % to 37%.
The majority of individual income tax changes would be temporary, expiring after Dec.31, 2025.
Teachers can deduct up to $250 for unreimbursed expenses for classroom supplies or school materials from their taxable income.
Electric car owners who bought a vehicle after 2010 may be given tax credit of up to $7,500, depending on the battery capacity.
Adoptive parents are allowed a tax credit and employer-provided benefits up to $13,570 per eligible child in 2017.
Student Loan Interest Deduction
Student loan borrowers may deduct up to $2,500 on the interest paid for student loans every year.