What You Should Know and How You May Be Affected

Many of you are wondering how you’re affected by the new tax law, don’t worry, Americorp Solutions have your back.  We’re doing the work to make sure we won’t miss a beat and you won’t miss savings when it comes to tax reform.

So what’s in the bill and how might it affect your taxes?  I’ve put together a summary of the major tax provisions in the new tax bill.  You can also use the calculator at the bottom of this page to estimate your impact.

 

NEW INCOME TAX RATES AND BRACKETS
To determine regular tax liability, an individual uses the appropriate tax rate schedule (or IRS-issued income tax tables for taxable income of less than $100,000). The Internal Revenue Code provides four tax rate schedules for individuals based on filing status –  single, married filing jointly/surviving spouse, married filing separately, and head of household — each status is then divided into income ranges which are taxed at progressively higher marginal tax rates as income increases. The olld rates for individuals were: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The New Act applies from tax years 2018 through 2025 then expires. 
FOR MARRIED INDIVIDUALS FILING JOINTLY AND SURVIVING SPOUSES:
Taxable Income: Tax Cost:
Not over $19,050 10% of taxable income
Over $19,050 but not over $77,400 $1,905 plus 12% of the excess over $19,050
Over $77,400 but not over $165,000 $8,907 plus 22% of the excess over $77,400
Over $165,000 but not over $315,000 $28,179 plus 24% of the excess over $165,000
Over $315,000 but not over $400,000 $64,179 plus 32% of the excess over $315,000
Over $400,000 but not over $600,000 $91,379 plus 35% of the excess over $400,000
Over $600,000 $161,379 plus 37% of the excess over $600,000
FOR SINGLE INDIVIDUALS (OTHER THAN HEADS OF HOUSEHOLDS AND SURVIVING SPOUSES):
Taxable Income: Tax Cost:
Not over $9,525 10% of taxable income
Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525
Over $38,700 but not over $82,500 $4,453.50 plus 22% of the excess over $38,700
Over $82,500 but not over $157,500 $14,089.50 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000 $32,089.50 plus 32% of the excess over $157,000
Over $200,000 but not over $500,000 $45,689.50 plus 35% of the excess over $200,000
Over $500,000 $150,689.50 plus 37% of the excess over $500,000
FOR HEADS OF HOUSEHOLDS:
Taxable Income: Tax Cost:
Not over $13,600 10% of taxable income
Over $13,600 but not over $51,800 $1,360 plus 12% of the excess over $13,600
Over $51,800 but not over $82,500 $5,944 plus 22% of the excess over $51,800
Over $82,500 but not over $157,500 $12,698 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000 $30,698 plus 32% of the excess over $157,500
Over $200,000 but not over $500,000 $44,298 plus 35% of the excess over $200,000
Over $500,000 $149,298 plus 37% of the excess over $500,000
FOR MARRIEDS FILING SEPARATELY:
Taxable Income: Tax Cost:
Not over $9,525 10% of taxable income
Over $9,525 but not over $38,700 $952.50 plus 12% of the excess over $9,525
Over $38,700 but not over $82,500 $4,453.50 plus 22% of the excess over $38,700
Over $82,500 but not over $157,500 $14,089.50 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000 $32,089.50 plus 32% of the excess over $157,500
Over $200,000 but not over $300,000 $45,689.50 plus 35% of the excess over $200,000
Over $300,000 $80,689.50 plus 37% of the excess over $300,000
FOR ESTATES AND TRUSTS:
Taxable Income: Tax Cost:
Not over $2,550 10% of taxable income
Over $2,550 but not over $9,150 $255 plus 24% of the excess over $2,550
Over $9,150 but not over $12,500 $1,839 plus 35% of the excess over $9,150
Over $12,500 $3,011.50 plus 37% of the excess over $12,500

 

INCREASE IN THE STANDARD DEDUCTION

To determine taxable income, the  Adjusted Gross Income (AGI) is reduced by either the standard deduction or the sum of itemized deductions. Prior to 2018, the standard deduction amounts, to have been: $6,500 for single individuals and married individuals filing separately, $9,550 for heads of household and $13,000 for married individuals filing jointly (including surviving spouses). Through December 31, 2025 the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-households, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018. No changes were made to the current-law additional standard deduction for the elderly and blind.

SUSPENSION OF PERSONAL EXEMPTIONS

Under the prior law, individual taxpayers determined their taxable income by subtracting the standard deduction and personal exemptions (equal to $4,150 per individual in a household in 2018) from their adjusted gross income.  Subject to phase-outs for higher earners, personal exemptions were allowed for the taxpayer, the taxpayer’s spouse, and any dependents. Under the new law, the deduction for personal exemptions is zero.

The IRS may administer withholding rules under Code Sec. 3402 for tax years beginning before Jan. 1, 2019 without regard to the above amendments — i.e., wage withholding rules may remain the same as present law for 2018.

This new provision is expected to effect families that claim more than 2 dependents and itemize the most

CAPITAL GAINS TAX CHANGES

Under prior law, individual capital gains were taxed at maximum rates of 0%, 15%, or 20%. They applied as follows: No significant changes were made.

Ordinary Income Tax Bracket Capital Gain Tax Rate
10% and 15% brackets 0%
25%, 28%, 33%, 35% 15%
39.6% 20%
SUSPENSION OF DEDUCTIONS FOR PERSONAL CASUALTY & THEFT LOSSES

Previously, individual taxpayers were generally allowed to claim an itemized deduction when personal casualty losses, including those arising from fire, storm, shipwreck, or other casualty, or from theft were not compensated for.  Through the 2025 tax year,  the personal casualty and theft  loss deduction is suspended unless the personal casualty losses incurred due to a Federally-declared disaster .

GAMBLING LOSS LIMITATIONS

Taxpayers could claim a deduction for wagering losses to the extent of wagering winnings, miscellaneous expenses such as transportation to venue or admission fees connected to wagering could be claimed regardless of wagering winnings. The limitation on wagering losses is changed under the new law. All deductions for expenses incurred in carrying out wagering transactions, and not just gambling losses, are limited to the extent of gambling winnings.

CHANGES TO TAX CREDITS

CHILD TAX CREDIT

Prior to the change, a taxpayer could claim a child tax credit of up to $1,000 per qualifying child under the age of 17 and receive an additional child tax credit up to $1,000 in some cases.  The credit phased out by $50 for each $1,000 of AGI over $75,000 for single filers, $110,000 for married filers, and $55,000 for married individuals filing separately. When the credit exceeded a taxpayer’s liability, a refundable credit (i.e., the additional child tax credit) equal to 15% of earned income in excess of $3,000 (the “earned income threshold”) was available.

Under the new law through tax year 2025, Code Sec. 24(h)(2), now provides an increase of the child credit to $2,000. The credit phases out beginning at higher income levels: $400,000 for married taxpayers filing jointly ($200,000 for all other taxpayers) (not indexed for inflation). In addition, a $500 nonrefundable credit is provided for certain non-child dependents.

The amount of the credit that is refundable has been increased to $1,400 per qualifying child up to the $2,000 base credit amount. The earned income threshold for the refundable portion of the credit is decreased from $3,000 to $2,500. The child’s SSN is required in order to be eligible for the credit you can not claim the credit if your child has an ITIN, Individual Taxpayer Identification Number.

DEDUCTIONS & EXCLUSIONS

STATE AND LOCAL TAX DEDUCTION

State and local taxes, including real and personal property taxes, income taxes, and/or sales taxes could be deducted from taxable income as an itemized deduction.

Under the new law, a taxpayer may only claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of (i) State and local property taxes, State and local income or sales taxes. Foreign real property taxes may not be deducted.

MORTGAGE AND HOME EQUITY INDEBTEDNESS INTEREST DEDUCTION

Beginning 2018 through 2025, the New law removes the deduction for interest on home equity indebtedness, and the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately). The new lower limit doesn’t apply to any acquisition indebtedness incurred before Dec. 15, 2017. For tax years beginning Jan. 1, 2026, the limits and Home Equity indebtedness are restored, regardless of when the indebtedness was incurred.

A special exception pertains for a taxpayer who has entered into a binding written contract before Dec. 15, 2017 to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases such residence before Apr. 1, 2018. In this case, the taxpayer shall be considered to incur acquisition indebtedness prior to Dec. 15, 2017.

 

MEDICAL EXPENSE DEDUCTION THRESHOLD REDUCED

For tax years beginning 1/1/2017 and ending 12/31/2025 provides that the 10% of AGI medical expense deduction threshold is reduced to 7.5% for all taxpayers. In addition, the rule limiting the medical expense deduction for AMT purposes to 10% of AGI doesn’t apply to these same tax years.

CHARITABLE CONTRIBUTION DEDUCTION

The deduction for an individual’s charitable contribution is limited to prescribed percentages of the taxpayer’s “contribution base.” Under pre-Act law, the applicable percentages were 50%, 30%, or 20%, and depended on the type of organization to which the contribution was made, whether the contribution was made “to” or merely “for the use of” the donee organization, and whether the contribution consisted of capital gain property. The 50% limitation applied to public charities and certain private foundations.

For contributions made in tax years beginning during the 2018 through 2025 tax years, the 50% limitation under Code Sec. 170(b) for cash contributions to public charities and certain private foundations is increased to 60%. Contributions above the 60% limitation can be carried forward and deducted for up to five years, subject to the later year’s ceiling.

Under current law, contributions of $250 or more were deductible only if the donor provided a contemporaneous written acknowledgment (CWA) from the charitable organization. Under the new law, for contributions made in tax years beginning 1/1/2017,  Code Sec. 170(f)(8)(D) requiring the charitable organization’s reporting exemption from the CWA requirement is repealed.

ALIMONY DEDUCTION BY PAYOR/INCLUSION BY PAYEE SUSPENDED

The New Tax Act now states that any divorce or separation agreement executed after Dec. 31, 2018, or executed before that date but modified after it (if the modification expressly provides that the new amendments apply), alimony and separate maintenance payments are not deductible by the payor spouse and are not included in the income of the payee spouse. Rather, income used for alimony is taxed at the rates applicable to the payor spouse.

MISCELLANEOUS ITEMIZED DEDUCTIONS SUSPENDED

Prior to the New law, miscellaneous itemized deductions in excess of 2% of the taxpayer’s adjusted gross income were permitted. Under the new law, from  tax years 2018 through 2025,  the deduction for miscellaneous itemized deductions that are subject to the 2% floor is suspended.

OVERALL LIMITATION (“PEASE” LIMITATION) ON ITEMIZED DEDUCTIONS

Under previous law, higher-income taxpayers who itemized their deductions were subject to a limitation on these deductions.  Pease limitations aim to reduce the benefit of itemized deductions such as Charitable Contributions, Mortgage Interest, and State, Local Property Taxes. Taxpayers who exceed the threshold, the otherwise allowable amount of itemized deductions was reduced by 3% of the amount of the taxpayers’ adjusted gross income exceeding the threshold. The total reduction couldn’t be greater than 80% of all itemized deductions, and certain itemized deductions were exempt from the Pease limitation.  For tax years 2018 through 2025, the “Pease limitation” on itemized deductions is suspended

UNREIBURSED JOB EXPENSES AND OTHER MISCELLANEOUS ITEMIZED DEDUCTIONS SUSPENDED

Itemized expenses subject to the 2% limitation are suspended through 2025.  Includes union dues, unreimbursed job-related expenses like home office, tools, subscriptions, job seeking expenses, etc.

BUSINESS MEALS AND ENTERTAINMENT SUSPENDED

We are awaiting IRS guidance on whether business meals are considered entertainment (if not, they will remain 50% deductible).  Business clients entertaining expenses suspended through 2025.  Meals provided for the convenience of the employer are 50% deductible through 20125 then eliminated thereafter.

More details to come.

 

 

Now is a good time to double check your withholding to make sure you are having enough withheld from your paychecks to cover your tax bill. You can correct any discrepancies by turning a new Form W-4 (Employee’s Withholding Allowance Certificate) to your employer.

IRS Withholding Calculator – Update your W-4 to avoid surprises!!!

 

Contact us with question or for a free 15 min consultation.

No need to fret about memorizing these changes.  Americorp Solutions will be ready to make sure your taxes are completed right.