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2018 Tax Reform Changes



For Individuals:

  • New standard deduction is: Married filing jointly - $24,000, Single - $12,000.
  • Personal exemptions have been eliminated.
  • New federal tax rates and brackets all have been reduced from 2017 tax amounts
  • The child tax credit has increased to $2000 per child and the income limits have increased to $400,000 Married Filing Jointly and $200,000 Single.
  • AMT exemption increased so this means most taxpayers will NOT be in AMT.
  • “Kiddie tax” on unearned income is no longer taxed at the parent’s tax rate but will be taxed at trust tax rates.
  • The following deductions have been eliminated:
    • Moving expenses
    • Alimony for divorces settled after 2018
    • Unreimbursed employee business expenses
    • IRA fees and investment advisory fees
    • Tax prep fees not allocable to rental or business
    • Safe deposit box rental
    • Union dues
    • Casualty losses unless in a federally declared disaster area
    The following deductions are now limited:
    • Combined state and local income tax (SALT) and property taxes are limited to $10,000.
    • Home mortgage interest is limited to interest on $750,000 loans used to acquire, construct or improve your primary or secondary residence Loans written prior to 12/31/17 are grandfathered in and can total $1,000,000.
    • Home equity loans where proceeds were not used to acquire, construct or improve your primary or secondary home are no longer deductible.
For Investors:
  • Net investment income tax did not get repealed.
  • REITS and PTP income are included in the 20% deduction for qualified business income deduction.
  • Investment fees are no longer deductible on individual tax returns IRA fees should be paid out of IRA accounts so you can pay them with pretax dollars.
  • 529 Plans are now allowed to make distributions of up to $10,000, per student per year for public or private school expenses.
Income from Business/Investment Properties:
  • There is a new 20% deduction for income from a pass through entity or other business. This new deduction has limitations based on income and type of business. Personal service corporations will get this deduction if your joint taxable income is $315,000 or less. It is phased out between $315,000 and 415,000 for married filing jointly, and $157,500 and $207,500 for single.
Business Expenses:
  • Business losses are now limited to for taxpayers earning more than $500,000.
  • There is no longer a deduction for entertainment food and beverage are still allowed but entertainment (i.e. green fees, sporting event tickets, plays, concerts and other client entertainment) are disallowed.
Cost Recovery / Depreciation:
  • The depreciation on luxury cars has increased significantly these are vehicles less than 6000 lbs.
  • First year bonus depreciation is now 100% and can be taken on both new and used business property for assets purchased after 9/27/17. This applies to vehicles over 6000 lbs.
  • The IRS Section 179 fast write off of the cost of new and used equipment is $1,000,000 for equipment purchased after 12/31/17.
Estate and Gift Tax
  • For 2018 the federal estate and gift tax exemption increased to $11,000,000 with a top rate of 40%. The annual gift exclusion increased to $15,000 for 2018. The MN exemption is now $2,400,000 for 2018.
Tips for Tax Planning
  • Please let us know if you would like us to run a 2018 tax projection with the new tax reform rules after 4/17/18. The new 20% deduction for business income can be a complex calculation. This will be billed at a discounted hourly rate.
  • If you will be taking the standard deduction in 2018, you may consider donating your RMD directly to a charity so you do not lose the deduction. This also helps in lowering your AGI for Medicare premium costs. The maximum qualified charitable distribution (QCD) is $100,000.
  • You may also consider doubling your charitable deduction for 2018 to include your 2019 charitable contributions in order to itemize and then take the standard deduction the following year.

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