2018 Tax Law Summary
This is no where a complete summary of the Tax Law but areas that are most impactful to us.
Happy New Year to All and Welcome to the 2018 Tax Reform Act!! As we all know, this was only signed into law a week or so ago and many of the more complicated aspects must be analyzed; I am taking this opportunity to provide you with some of the basic changes at the individual level as well as the business entity levels. TRUST ME more will follow. Please note, the information provided here is for 2018 TAX RETURN – it does not relate to the 2017 returns being filed in 2018
EFFECTIVE IMMEDIATELY: as of 1/1/2018; the NYC minimum wage has increased to $12 for employers with 10 or fewer workers and $13 for employers with 11 or more workers. NYS minimum wage increases to $11.
- The standard deduction has been increased for 2018, in general:
Married filing jointly 24,000
Head of household 18,000
These are all roughly double the standard deductions for 2017.
- Personal exemptions have been eliminated. Prior to 2018 filings, in most cases, each Individual was entitled to a personal exemption on their tax return. Married individuals were entitled to two if filing jointly and taxpayers were entitled to exemptions for all “dependents” – so the effect could have been significant.
- Capital gain taxes – there are no changes to the general rules for taxing capital gains. the only change will be the tax on short term gains based on the new tax rate thresholds which will be discussed later.
- The 3.8% net investment income tax instituted a few years ago remains in effect
- The child tax credit has been expanded and the Child and Dependent Care credit remains in effect
- The Education tax credits and deduction for Student Loan Interest remain in effect; 529 College Savings Plans can now be used for K-12 rather than simply college expenses.
- Mortgage interest is deductible on mortgage debt of $750,000 rather than $1M. It impacts mortgages taken out AFTER December 15, 2017. Interest on home equity debt is no longer deductible
- One of the biggest changes for the tri state area is the limitation of the deductibility of real estate taxes on personal residence, income and sales taxes. The limitation FOR ALL THREE COMBINED IS $10,000.
- For 2018 filings, medical expenses in excess of 7.5% of your adjusted gross income will be deductible up from the 10% limitation for many individuals for the past couple of years.
- Alimony will no longer be deductible by the payor
- In general, all miscellaneous expenses subject to 2% of your adjusted gross income threshold have been eliminated – professional fees, home use of office, unreimbursed employee expenses, are all gone for 2018.
- The Alternative Minimum Tax remains in effect. However, taxes paid, one of the largest culprit in activating AltMin is significantly limited as of 2018.
- 2018 Individual tax rates:
Single MFJ MFS HoH
10% 0-9525 ` 0-19050 0-9525 0-13,600
12% 9,526-38,700 19,051-77,400 9,526-38,700 13,601-51,800
22% 38.701-82,500 77,401-165,000 38,701-82,500 51,801-82,500
24% 82,501-154,500 165,001-315,000 82,501-157,500 82,501-157,500
32% 157,501-200,000 315,001-400,000 157,501-200,000 157,501-200,000
35% 200,001-500,000 400,001-600,000 201,000-600,000 201,000-500,000
37% Over $500,000 Over $600,000 Over $600,000 Over $500,000
- A very big area to be analyzed is the “pass through entity deduction” this relates to “K-1” income reported by individuals with an equity interest in LLC’s, partnerships, “S” corporations and, potentially sole proprietorships. This section of the new tax code would potentially allow for a 20% deduction/credit of their pass through profit before ordinary income rates are applied – there are limitations and thresholds so more to come as I receive more definitive information.
- The corporate tax rate is a flat 21% on all profits. Prior to 2018, the tax rates went from 15%-35% depending on net profit.
- Bonus Depreciation has been extended at 100% through 2022. The act has also removed the rule that the bonus depreciation was only available for new, eligible property
- Luxury auto depreciation limits have been increased.
- Sec 179 depreciation -the act has been expanded to include certain “leasehold
Improvements” on nonresidential real property including roofs, heating, security systems, etc
- Interest expense deduction will be limited for 2018 with any disallowed deduction carried forward
- Like kind Exchanges will only be allowed for real property not primarily held for sale.
- Entertainment expenses are no longer deductible for: any activity generally considered to be entertainment, amusement or recreation; membership dues for any club organized for business, pleasure, recreation or other social purposes. Meals with, in general still be deductible at the 50% limitation.
There is much more to digest; stay tuned!!