W. Edward Newton Jr., CPA, CFP (R) | 13850 Ballantyne Corporate Place, Suite 500 | Charlotte, NC 28277 | 704-552-8689

 


2018 Year in Review: Tax Changes for Individuals


 

The Tax Cuts and Jobs Act of 2017 (TCJA) eliminated or modified numerous tax provisions starting in 2018.

Here's what individuals and families need to know as they get ready for tax season
.

1) Personal Exemptions
Personal exemptions are eliminated for tax years 2018 through 2025.

2) Standard Deductions
The standard deduction for married couples filing a joint return in 2018 is $24,000. For singles and married individuals filing separately, it is $12,000, and for heads of household, the deduction is $18,000.

The additional standard deduction for blind people and senior citizens in 2018 is $1,300 for married individuals and $1,600 for singles and heads of household.

3) Income Tax Rates
In 2018 the top tax rate of 37 percent affects individuals whose income exceeds $500,000 ($600,000 for married taxpayers filing a joint return). Marginal tax rates for 2018 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. While the tax rate structure remains similar to prior years (i.e., with seven tax brackets), the tax-bracket thresholds increased significantly for each filing status under tax reform.

4) Estate and Gift Taxes
In 2018 there is an exemption of $11.18 million per individual for estate, gift, and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $15,000.

5) Alternative Minimum Tax (AMT)
For 2018, exemption amounts increased to $70,300 for single and head of household filers, $109,400 for married people filing jointly and for qualifying widows or widowers, and $54,700 for married taxpayers filing separately.

6) Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been eliminated under TCJA.

7) Flexible Spending Account (FSA)
A Flexible Spending Account (FSA) is limited to $2,650 per year in 2018 (up from $2,600 in 2017) and applies only to salary reduction contributions under a health FSA. The term "taxable year" as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.

8) Long-Term Capital Gains
In 2018 tax rates on capital gains and dividends remain the same as 2017 rates (0%, 15%, and a top rate of 20%); however, threshold amounts are different in that they don't correspond to the tax bracket structure as they did in the past. For example, taxpayers whose income is below $38,600 for single filers and $77,200 for married filing jointly pay 0% capital gains tax. For individuals whose income is at or above $425,800 ($479,000 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

9) Miscellaneous Deductions
Miscellaneous deductions exceeding 2% of AGI (adjusted gross income) are eliminated for tax years 2018 through 2025. As such, you can no longer deduct on Schedule A expenses related to tax preparation, moving (except for members of the Armed Forces on active duty who move because of a military order), job hunting, or unreimbursed employee expenses such as tools, supplies, required uniforms, travel, and mileage. Business owners are not affected and can still deduct business-related expenses on Schedule C.

Individuals - Tax Credits

10) Adoption Credit
In 2018 a nonrefundable (i.e., only those with tax liability will benefit) credit of up to $13,810 is available for qualified adoption expenses for each eligible child.

11) Child and Dependent Care Credit
The Child and Dependent Care Tax Credit was permanently extended for taxable years starting in 2013 and remained under tax reform. As such, if you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.

For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

12) Child Tax Credit and Credit for Other Dependents
For tax years 2018 through 2025, the Child Tax Credit increases to $2,000 per child, up from $1,000 in 2017, thanks to the passage of the TCJA. The refundable portion of the credit increases from $1,000 to $1,400 - 15 percent of earned income above $2,500, up to a maximum of $1,400 - so that even if taxpayers do not owe any tax, they can still claim the credit. Please note, however, that the refundable portion of the credit (also known as the additional child tax credit) applies only when the taxpayer isn't able to fully use the $2,000 nonrefundable credit to offset their tax liability.

Under TCJA, a new tax credit - Credit for Other Dependents - is also available for dependents who do not qualify for the Child Tax Credit. The $500 credit is nonrefundable and covers children older than age 17 as well as parents or other qualifying relatives supported by a taxpayer.

13) Earned Income Tax Credit (EITC)
For tax year 2018, the maximum earned income tax credit (EITC) for low and moderate-income workers and working families increased to $6,431 (up from $6,318 in 2017). The maximum income limit for the EITC increased to $54,884 (up from $53,930 in 2017) for married filing jointly. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Individuals - Education Expenses

14) Coverdell Education Savings Account
You can contribute up to $2,000 a year to Coverdell savings accounts in 2018. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.

15) American Opportunity Tax Credit
For 2018, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.

16) Lifetime Learning Credit
A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2018, the modified adjusted gross income threshold at which the Lifetime Learning Credit begins to phase out is $112,000 for joint filers and $56,000 for singles and heads of household.

17) Employer-Provided Educational Assistance
As an employee in 2018, you can exclude up to $5,250 of qualifying postsecondary and graduate education expenses that are reimbursed by your employer.

18) Student Loan Interest
In 2018 you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $135,000 (married filing jointly). The deduction is phased out at higher income levels.

Individuals - Retirement

19) Contribution Limits
For 2018, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is $18,500 ($18,000 in 2017). For persons age 50 or older in 2018, the limit is $24,500 ($6,000 catch-up contribution).

20) Retirement Savings Contributions Credit (Saver's Credit)
In 2018, the adjusted gross income limit for the saver's credit for low and moderate-income workers is $63,000 for married couples filing jointly, $47,250 for heads of household, and $31,500 for married individuals filing separately and for singles. The maximum credit amount is $2,000 ($4,000 if married filing jointly). Also of note is that starting in 2018, the Saver's Credit can be taken for your contributions to an ABLE (Achieving a Better Life Experience) account if you're the designated beneficiary. However, keep in mind that your eligible contributions may be reduced by any recent distributions you received from your ABLE account.

If you have any questions about these and other tax provisions that could affect your tax situation, don't hesitate to call.

Recap of Business Tax Provisions for 2018
Here's what business owners need to know about tax changes for 2018.

21) Standard Mileage Rates
The standard mileage rate in 2018 is 54.5 cents per business mile driven.

22) Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000 (adjusted annually for inflation). In 2018 this amount is $53,200.

In 2018 (as in 2014-2017), the tax credit is worth up to 50 percent of your contribution toward employees' premium costs (up to 35 percent for tax-exempt employers. For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.

23) Section 179 Expensing and Depreciation

Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction increases to a maximum deduction of $1 million of the first $2,500,000 of qualifying equipment placed in service during the current tax year. The deduction was indexed to inflation after 2018 and enhanced to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems.

Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. The standard business depreciation amount is 25 cents per mile (same as 2017).

Please call if you have any questions about Section 179 expensing and the bonus depreciation.

24) Work Opportunity Tax Credit (WOTC)

Extended through 2019, the Work Opportunity Tax Credit remained under tax reform and can be used by employers who hire long-term unemployed individuals (unemployed for 27 weeks or more). It is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Please call if you have any questions about the Work Opportunity Tax Credit.

25) SIMPLE IRA Plan Contributions
Contribution limits for SIMPLE IRA plans increased to $12,500 for persons under age 50 and $15,500 for persons age 50 or older in 2018. The maximum compensation used to determine contributions is $275,000.

Please contact the office if you would like more information about these and other tax deductions and credits to which you are entitled.


PROFESSIONAL GUIDANCE or QUESTIONS?

These are good tips & guidelines to follow regarding GIFTS. However, understanding and applying these GIFT rules can be confusing.  If you need help or have a question, as always please contact us here at the office at 704-552-8689.
 


 

 


 

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Regards, W. Edward Newton Jr., CPA

Certified Public Accountant

 

 

 

 

W. Edward Newton Jr., CPA | Certified Public Accountant

13850 Ballantyne Corporate Place, Suite 500 Charlotte, North Carolina 28277
Phone: (704) 552-8689  |  Email: ed@newtonassociatescpa.com