As we approach year end 2018, there are significant changes in the tax law enacted on December 22, 2017 that need to be considered in year end tax planning:
- With the standard deduction increasing to $12,000 for single filers and to $24,000 for joint filers, the important tax planning question is whether to itemize or take the standard deduction.
- The personal exemptions have been eliminated with the new tax law.
- If buying a home and purchasing it with a mortgage, the new law comes with a cap on the mortgage interest deduction. Mortgage interest is deductible only up to mortgages of$750,000. There is no change to the interest deduction on mortgages that were in existence prior to 2018. The interest deduction is itemized on Schedule A. Home equity loan interest becomes non-deductible in 2018.
- State and local income taxes (and real estate taxes) effective for 2018 are limited to $10,000 as an itemized deduction.
- Expenses previously deductible, such as estate tax planning legal fees, accounting/tax fees, investment related expenses, and unreimbursed employee expenses, are no longer deductible under the new tax law on Schedule A.
- Beginning in 2018, casualty losses are not tax deductible unless they are incurred in a federally declared disaster area.
- Moving expenses in connection with a new job are no longer deductible in 2018 except for active duty members of the Armed Forces.
- For the 2018 tax year, alimony is deductible by the payor spouse and included in income by the receiving spouse. For 2019, the deduction from the payor is eliminated but so does the inclusion in income to the receiving spouse.
- The AMT exemption was increased substantially. In 2018, the exemption is $109,400 for married filing joint and $70,300 for singles and heads of household, and $54,700 for married taxpayers filing separately. The income levels at which the exemptions phase out are much higher. They are $1 million for married couples filing jointly and $500,000 for other taxpayers. Many of the tax breaks that triggered the AMT for middle class taxpayers have been changed due to the changes in the itemized deductions.
- The child tax credit has been increased. Instead of taking a credit for $1,000 per child in 2017 and previous years, you’ll receive a tax credit of $2,000 per child in 2018. Married couples who make under the $400,000 per year (and individuals who earn less than $200,000 per year) will be able to take $2,000 per child as their Child Tax Credit.