2018 Year-End Tax Planning

TAX REFORM IMPACT: INDIVIDUALS

Tax rates have decreased, personal exemption was eliminated, standard deduction doubled, & some popular deductions changed. Here’s a recap of some of the most common changes our clients are asking about:

• New Standard Deductions

• Taxpayers may continue to deduct medical expenses in excess of 7.5 percent of adjusted gross income.

• State, local and real estate tax deductions are cumulatively capped at $10,000 for married filing jointly and $5,000 for single filers.

• The cutoff for mortgage interest deductibility drops from $1 million to $750,000 for mortgage debt incurred after December 15, 2017.

• Home equity loan interest remains deductible, subject to usage criteria.

• The income limitation for cash donations to public charities changed from 50 to 60 percent of AGI.
  • Consider donation of appreciated assets; Bunching method; Donor Advised Fund (DAF); Qualified Charitable Distribution (QCD) from IRA.

• Several miscellaneous itemized deductions are repealed through 2025. This includes investment fees and expenses, professional service fees and unreimbursed business expenses.

• Moving expenses: This deduction is repealed through the end of tax year 2025 but remains available to members of the Armed Forces.

• Alimony: Tax reform eliminates deductions for alimony payments required under divorce or separation instruments executed after December 31, 2018. Recipients of affected alimony payments will no longer have to include them in taxable income.

• The Child Tax Credit is temporarily doubled to $2,000 for each qualifying child under the age of 17, subject to an income limitation.

• A new $500 credit for any dependents who are not qualifying children under age 17. There is no age limit for the $500 credit, but the tests for dependency must be met.

• Distributions from 529 plans can now cover up to $10,000 of educational expenses for designated beneficiaries enrolled at a public, private or religious elementary or secondary school.

• No changes to the American Opportunity Credit, Lifetime Learning Credit, Student Loan Interest Deduction and Educator Expense Deduction ($250).

TAX REFORM IMPACT: BUSINESSES

• Corporate tax rate cut for C Corporations to a flat 21%.

• New 20% deduction for pass-through entities (subject to certain limitations).

• Bonus depreciation doubled; Section 179 limits increased.

• Entertainment, recreation, amusement expenses no longer deductible; all meals limited to 50%.

• The Domestic Production Activity Deduction (DPAD) no longer applies for tax years after December 31, 2017.