2018 Year End Tax Tips

Ready for tax season? The 2017 Tax Cuts and Jobs Act brought about some pretty significant changes that went into effect in 2018, presenting a very different picture to individual taxpayers.

Rodman CPAs, a full-service tax and accounting firm based in Waltham, MA serving small and mid-sized businesses, breaks down a few of the biggest changes for individual taxpayers:

Changes to the tax brackets – The lower tax rates and higher income limits may provide some tax relief. The highest tax bracket has been reduced by 2.6 percent from 39.6 percent to 37 percent and kicks in at a higher income level $500K for single filers ($600K joint filers) vs. $418K single ($470K joint) in 2017. To give you another example, those who are married filing jointly with taxable income of $300K will enjoy a 24 percent tax rate, down from 33 percent in 2017.

Items impacting standard vs. itemized deductions – The basic standard deduction has almost doubled to $24,000 for joint filers, $18,000 for heads of household, and $12,000 for singles as compared to the $12,700, $9,350 and $6,350, respectively in 2017. In addition, miscellaneous itemized deductions such as unreimbursed business expenses, tax preparation fees, and investment fees, have been eliminated and there has been a $10,000 limit on State and local taxes (SALT). As a result, more people will take the standard deduction, which will adversely impact those with high real estate taxes and those doing business in many different states. There has been a decrease in maximum debt allowed to deduct interest on and it is now $750,000, down from $1.1 million. Charitable contributions allowed has been increased from 50 percent to 60 percent of taxpayer’s adjusted gross income (AGI).

Elimination of personal exemptions - Although the standard deduction has increased, personal exemptions have been eliminated. So, taxpayers with dependent children who may have been excited about the reduction in tax rates and increase in standard deduction, may find that they don’t make up for the elimination of personal exemptions (which was $4,050 per person in 2017, or $16,200 for a family of four) as they are no longer able to claim an exemption for their dependent children.

The child tax credit has doubled from $1,000 to $2,000 and the amount of the refundable portion of the credit has increased.  The income levels before phaseout have also been increased from $110,000 to $400,000 for joint filers and from $55,000/$75,000 to $200,000 for others, which means many taxpayers who were previously unable to take this credit are now able to take advantage of it before it is phased out.

NEW! Qualified Opportunity Zones – The Tax Cuts and Jobs Act allows taxpayers to take advantage of a new investment vehicle called a Qualified Opportunity Fund (QOF). QOF directs resources to low-income communities called Qualified Opportunity Zones.  A QOF provides three incentives to any investor (business or individual): 1) deferral of short or long-term capital gain until December 31, 2026; 2) possible reduction in amount of gain realized through basis adjustments after five and seven years of investment; and 3) possible permanent exclusion of gain on the appreciation of the interest in a QOF.

Estate and gift tax exemption –The lifetime estate and gift tax exemption has been increased to $11.2 million from $5.49 million. This is good news for individuals, and even better for couples (who can double that amount). Plus, it allows taxpayers to give to other generations – for example, children, grandchildren and great-grandchildren.

Fewer taxpayers will have to deal with alternative minimum tax (AMT) - AMT has not been eliminated entirely, but fewer people will be subjected to it thanks to an increase in the AMT exemption amount and a significant increase in the AMTI phaseout limit for individuals as well as the elimination of all but $10K SALT deductions.

“We’re seeing the impact of the new tax laws now, and it’s a very different picture,” said Minassian. “Individual taxpayers are in for a few surprises. For example, taxpayers with children may not realize that the elimination of itemized deductions and personal exemptions may offset the lower tax bracket and increase in standard deductions.”

Individual, Family and Fiduciary Tax

Rodman CPAs specialize in tax planning and preparation for business owners, executives and high net worth individuals to minimize their tax liability and avoid tax surprises. Additionally, they assist with complex tax issues, employment and separation agreements, and deferred compensation planning. The Rodman team collaborates with you, your legal counsel, and other advisors on a host of tax issues which include (but are not limited to) family trusts and beneficiaries, efficient use of retirement plan assets, and executives and equity based compensation plans.

To access the firm’s resources and Tax Planning Guides, visit Rodmancpa.com/resources.