2018 Tax Reform Impact on Individuals - What you should know.

President Trump signed the tax reform commonly referred to as the Tax Cuts and Jobs Act (TCJA) into law in December 2017.  Many new provisions impact individual taxpayers in 2018 and beyond.  Here is a breakdown of changes that may affect you and your family:

 ACA individual mandate:

IRS will do away with the penalty for not maintain health insurance coverage starts from Jan. 1, 2019.  You still may have to pay a fine if you went without coverage in 2018.

Tax brackets and Tax Rate

There are still seven tax brackets, but the income brackets are adjusted for inflation. As a result, most people will pay less tax under the new law.  Besides, the tax rate and income brackets for the unearned income of a child have changed and are no longer affected by the parent tax situation.  The new tax brackets will be expired after 2026.  

Standard deductions and itemized deductions

 The standard deductions under TCJA are nearly double this year.  Taxpayers who do not itemize can claim the standard deduction of $12,000 for single individuals, $18,000 for heads of household, or $24,000 for married couples filing jointly.

If you choose itemized deductions, plan it accordingly as the new rules changes and even eliminates many itemized deductions.   

Medical and dental expense:

You can deduct qualified medical expense that is more than 7.5% of your 2018 adjusted income. Before this law, your medical expense must be exceeded 10% of adjusted income in order to be deductible.

-  State and Local Taxes: You can claim an itemized deduction up to $10,000 in combined state and local income, sales and property taxes ( $5000 for married filing separately)

Home Mortgage and home equity interest:   The interest on the home equity loan used to buy, build or improve your home is deductible, and the interest on the same loan used for the personal living expense is not.   There is also a new limit on a total qualified residential mortgage.  If you bought a new home in 2018, you could only deduct interest on a total of $750,000 in qualifying debts instead of $1 million debts previously.

Charitable Contributions:  You may deduct more of your charitable contributions this year.  The income-based limits have increased from 50% to 60% of your adjusted gross income

Casualty and theft losses: IRS only allows the deduction in a federally declared disaster.  The claim must include the FEMA disaster code.

Moving expense:  Moving expense is no longer deductible unless you are a member of the US military on active duty.  Moving expenses paid by the employer will be considered as W2 wages.

Personal Exemptions and Tax Credits

- Deduction for personal exemptions:  Personal exemptions for yourself, your spouse or your dependents are suspended under TCJA

Child tax credits and credits for other dependents:  The maximum credit increase to $2000 per qualifying child.  Also,  you may claim up to $500 for each of your qualifying dependents who are college students, children age 17 or over, or other relatives in your household.

Savings Plans:

Roth IRA Conversion Re-characterization of a Roth IRA conversion from a traditional IRA, SEP, or SIMPLE to a Roth IRA is no longer allowed.

529 college saving plans:  Under previous tax law, IRS limited the benefits of 529 plans to qualified higher education.  The new rules allow you to use up to $10,000 a year per student for K-12 tuition related expenses. Eligible schools include public, private, or religious grade schools. 

Copyright © 2018 Thanhdung Arnold, CPA