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Author: Lindsey Miller

After months of debate, acrimony and drama, the US Congress passed the Tax Cuts and Jobs Act, and sent it to President Trump for signature.

Starting January 1, 2018, many individual taxpayers will see significant change in how they plan and prepare their taxes.

 

Key Changes in the New Tax Plan for individuals

The 500-page bill includes the following key changes for individual taxpayers and their families:

1. Seven tax brackets remain, but income taxes cut
  1.   Rate changes expire in 2025, unless extended by congress
  2.   Look for initial withholding guidance from the IRS in January
  3.   Indexed for inflation by a chained CPI

Freed Maxick Insights

This will give rise to many planning opportunities in the year before the new brackets expire. In addition, with the new brackets taking effect in 2018, it does not allow much time for pre-change planning.

2. Standard deduction

  1.   Nearly doubled
  2.   Indexed for inflation by chained CPI
  3.   Personal exemptions eliminated

Freed Maxick Insights

With some itemized deductions being eliminated or limited, there will be an increase in the amount of taxpayers taking the standard deduction. However, the increase to the standard deduction amount will most benefit those taxpayers who have not itemized in the past.

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3. Other Itemized Deductions
  1.   Mortgage interest deduction remains, but is modified
  2.   State and local tax deduction is limited to $10,000, may choose to include sales taxes as an alternative. Congress also acted to prevent pre-payment of taxes to avoid future limitations
  3.   Medical expenses deductions temporarily enhanced by lowering the threshold to 7.5% of AGI in the 2018 and 2019 tax years
  4.  Alimony no longer tax deductible and the associated income is no longer taxable

Freed Maxick Insights

It was originally thought that the state and local income tax deduction would be completely eliminated. While that did not end up being the case, it is worth it to note that the $10,000 limit includes both income and property taxes. Therefore, this provision will still severely limit the itemized deductions of many taxpayers. But don’t consider prepaying your 2018 state income taxes in 2017. Those amounts will not be deductible until 2018.

 

4. Alimony

     a. For divorce or separation decrees after 2018, alimony is no longer tax deductible to the             payor and the associated income is no longer taxable to the recipient 

5. Affordable Care Act

     a. The bill does not repeal the Affordable Care Act’s taxes on net investment income, the             additional Medicare tax, medical device tax and others
     b. The bill does repeal the individual mandate requirement (starting 2019)

6.. Estate tax exemption

     a. Doubles the exclusion amounts
     b. Generation skipping tax exemption is also doubled

Freed Maxick Insights

Time to revisit your Estate Planning. There should be many opportunities to minimize the estate tax burden. 

7. Alternative Minimum Tax
  1.  The exemption increased from $54,300 to $70,300 for singles and from $84,500 to $109,400       for joint filers

Freed Maxick Insights

Maybe next time this will finally go away! Contact us and let’s see how this affects you.


8. Education

  1.  Up to $10,000 in 529 savings plans can now be used for tuition at private and religious K-12       schools
  2. Deductions for classroom supplies bought by a teacher remains
  3. Tax free status of graduate student tuition waivers remains
  4. Student loan interest deduction remains

9. Families
  1.  Child Tax Credit increased from $1,000 to $2,000. Credit is refundable up to $1,400. The plan also increases the income level from $110,000 to $400,000 for married tax filers
  2. $500 credit for each non-child dependent now allowed

Freed Maxick Insights

This provision will offset some of the impact of eliminating personal exemptions for families with multiple children.

 

Of course, if you have any questions or concerns, call the Freed Maxick Tax Team at 716.847.2651 to discuss your tax situation. Or, connect with us here to schedule a Tax Situation Review.

For more insight, observations and guidance on the new Tax Cuts and Jobs Act, visit our Tax Reform webpage.