U.S. Tax Preparation Worldwide

James Maertin, CPA

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2018 Tax Law Changes (compared to 2017)


 

The information below is based on my current understanding of the tax law that was passed December 22, 2017.  The IRS is still working on releasing information and guidance.  You can either claim the standard deduction or itemize deductions, whichever is higher.  (Note:  Nonresident aliens filing Form 1040NR are generally required to claim itemized deductions).

 

2017 Tax Return

2018 Tax Return

 

 

CLAIMING THE STANDARD DEDUCTION

Single  $6,350

Married Filing Jointly $12,700

Married Filing Separately $6,350

Head of Household $9,350

(Note:  The standard deduction is higher for people born before January 2, 1953).

CLAIMING THE STANDARD DEDUCTION

Single  $12,000

Married Filing Jointly $24,000

Married Filing Separately $12,000

Head of Household $18,000

Deduction for Personal Exemption

A deduction reduces your income, not your tax.

Taxpayer, spouse and dependent can claim $4,050 each, subject to the following phase-outs in adjusted gross income:
Single (beginning at $261,500, phased out completely at $384,000); Married filing jointly (beginning at $313,800, phased out completely at $436,300). 

 

Deduction for Personal Exemption

Eliminated

 

 

 

CLAIMING ITEMIZED DEDUCTIONS

CLAIMING ITEMIZED DEDUCTIONS

Home Acquisition Debt (primary plus second home):

Deduct interest paid on mortgages up to $1,000,000.  However, if the loan exceeds $1 million, the next $100,000 of that debt can be treated as home equity debt.  In other words, the $1,000,000 limit is really $1,100,000.

 

Home Acquisition Debt (primary plus second home):

Loans secured before 12/15/17
Deduct interest paid on mortgages up to $1,000,000

Loans secured after 12/15/17:

Deduct interest paid on mortgage debt up to $750,000

 

Home Equity Debt:

Deduct interest paid on loans up to $100,000.

 

Home Equity Debt:

You can only deduct interest paid on home equity debt if the debt was used to buy, build or substantially improve the taxpayer's home that secures the loan.  The total of the home equity debt plus home acquisition debt cannot exceed $750,000.  You cannot deduct interest from home equity debt for a second home if the loan is secured by the main home and not the second home.

Property Tax Deduction:

Unlimited.  Deduct real estate taxes paid (state, local or foreign) on real property, including vacant land.

 

Property Tax Deduction:

No deduction for foreign property taxes. 
Deduction is limited to $10,000 split between state/local taxes and property taxes.

State and Local Taxes:

Deduct state and local income taxes paid during 2017.    

 

State and Local Taxes

Deduction is limited to $10,000 split between state/local taxes and property taxes.

Medical Expenses.

Can only claim the portion of the out-of –pocket medical expenses that exceed 7.5% of your adjusted gross income.

 

Medical Expenses.

No change.  After 2018, medical expenses cannot exceed 10% of AGI.

Charitable Donations:

Cash and non-cash gifts to qualified charities are deductible.

 

Charitable Donations:

No change. 

Job Expenses and Miscellaneous Itemized Deductions

Can only claim the portion that of the total expenses that exceed 2% of your adjusted gross income.  Includes unreimbursed employee business expenses, investment advisory fees, safe deposit box fees, tax prep fees, and more.

 

Job Expenses and Miscellaneous Itemized Deductions

Eliminated.

 

Casualty and Theft Losses

For victims of fire, flood, burglary or similar event.  You can only claim the portion that exceeds 10% of your adjusted gross income.

.

 

Casualty and Theft Losses

Same rules but you can only claim the losses if the event was declared a disaster by the president.  The loss may be claimed in addition to the standard deduction.

 

Itemized Deduction Limitation

Your itemized deductions may be limited

 

Itemized Deduction Limitation

The overall limit on itemized deductions is suspended for tax years 2018-2025.

 

   

Child Tax Credit

A credit reduces your tax, not your income.

$1,000, subject to phase-out beginning with modified adjusted gross income of:

Single ($75,000), married joint ($110,000).   For each $1,000 of income above the threshold, your available child tax credit is reduced by $50.

The child can have a SSN or ITIN.

 

Child Tax Credit

A credit reduces your tax, not your income.

$2,000, subject to phase-out beginning with in modified adjusted gross income of:

Single ($200,000), married filing jointly ($400,000).

The child must have a SSN.

 

Moving Expenses

You can claim moving expenses as long as the new workplace is at least 50 miles farther from the old home than the old job location was from the old home.

 

Moving Expenses

Eliminated (with some exceptions for members of the military).

 

529 Plans

You can withdraw the money that you contributed tax-free to pay for higher education expenses (i.e., college/university).

 

529 Plans

In addition to paying for higher education, you can also withdraw up to $10,000 each year, per child, to pay for private or religious school, or if you home-school.

 

Pass-Through Business Income

Pass through ordinary income is taxed at normal individual tax rates.

 

Pass-Through Business Income

Individuals can generally deduct 20% of their qualified business income from a partnership, S corporation and sole proprietorship prior to applying the personal income tax rates.  There are limits, including a phaseout for the deduction.

 

2017 Individual Income Tax Brackets
 

Single
 

·         10%:  $0 to $9,325

·         15%:  $9,325 to $37,950

·         25%:  $37,951 to $91,900

·         28%:  $91,901 to $191,650

·         33%:  $191,651 to $416,700

·         35%:  $416,701 to $418,400

·         39.6%:  over $418,400


Married

·         10%:  $0 to $18,650

·         15%:  $18,651 to $75,900

·         25%:  $75,901 to $153,100

·         28%:  $153,101 to $233,350

·         33%:  $233,351 to $416,700

·         35%:  $416,701 to $470,700

·         39.6%:  over $470,700

 

2018 Individual Income Tax Brackets
 

Single
 

·         10%:  $0 to $9,525

·         12%:  $9,526 to $38,700

·         22%:  $38,701 to $82,500

·         24%:  $82,501 to $157,500

·         32%:  $157,501 to 200,000

·         35%:  $200,001 to $500,000

·         37%:  over $500,000
 

Married

·         10%:  $0 to $19,050

·         12%:  $19,051 to $77,400

·         22%:  $77,401 to $165,000

·         24%:  $165,001 to $315,000

·         32%:  $315,001 to $400,000

·         35%:  $400,001 to $600,000

    37%:  over $600,000

 

AMT Exemption

Single ($54,300), married joint ($84,500)

Alternative Minimum Tax Exemption Phaseout Threshold

Single ($120,700), married joint ($160,900)

 

AMT Exemption

Single ($70,300), married joint ($109,400)

Alternative Minimum Tax Exemption Phaseout Threshold

Single ($500,000); married joint ($1,000,000)

 

Individual Health Insurance Mandate

Fee for not having insurance is the higher of:  (1) 2.5% of household income (to maximum of total yearly premium of national average of Bronze plan) or (2) $695 per adult, $347.5 per child under 18 (to maximum of $2,085).

 

Individual Health Insurance Mandate

Fee is similar to 2017, but the mandate is eliminated in 2019.