Here is an outline of some of the federal income tax changes that may affect your 2018 tax return. California has not yet complied with all of these changes; for 2018 the disappearing deductions may still be available to California.
Tax Rate Changes
Individual Rate: Maximum is 37%. This could either lower or raise your tax liability.
Corporate Rate: Flat 21%.
Standard Deduction Increases
The Standard Deduction amounts have almost doubled.
Personal Exemption Deductions for yourself, spouse or dependents are no longer allowed. This could either lower or raise your tax liability.
Child Tax Credit & New Dependent Credit
Credit for each child has increased to $2,000.
Each non-child dependent receives a new credit of $500.
The phaseout thresholds for these credits are drastically increased. Married taxpayers filing a joint return can claim the full credits if their adjusted gross income is $400,000-$480,000 or less ($200,000-$240,000 for all others). The credits are fully phased out for married taxpayers filing a joint return when their adjusted gross income reaches $440,000 (1 child) ($240,000 for all others). This means that many more taxpayers will be able to claim these credits in 2018 and beyond.
Combined State income tax, DMV and property taxes more than $10,000 per year.
Mortgage interest will only be deductible on mortgages up to $750,000 of acquisition debt if you purchase a new home, $1,000,000 for existing mortgages.
Medical Expense AGI threshold temporarily drop to 7.5% of AGI for 2017 and 2018, 2019 it is scheduled to be back at 10%.
You will no longer be able to deduct
Moving expenses (except certain military)
Employee business expenses such as mileage, travel, entertainment, home office expenses, union dues, tax preparations fees and investment fees among others
Asset management fees
Personal tax preparation fees
Personal attorney fees
Mortgage interest paid on equity loans not used to improve your home
Alimony for divorces finalized after 12/31/18, it is also not taxable
Mortgage insurance premiums (expired 12/31/17)
Casualty losses, unless a Presidentially declared disaster
Business meals provided while entertaining
Meals provided to employees for the convenience of the employer are now 50% deductible
Documentation for allowable deductible meals should include:
Receipt should have name of meal provider, total cost, and date
Who the meals were provided to
What was the purpose/topics discussed
New Benefits For Individuals
AMT threshold increased, fewer mid-income taxpayers will incur AMT.
Estate tax exclusion increased to $10 million.
Gift Tax exclusion is $15,000 for 2018.
Beginning in 2018 there will be up to a 20% deduction from net business income for a sole proprietorship, LLC (excluding those taxed as a C Corporation), partnership, S Corporation and rental activity. There are limitations based on profits, wages paid, service businesses as well as reasonable officer compensation in an S Corporation.
Bonus Depreciation is temporarily increased to 100% for qualifying property and no longer is required to be new property.
Expensing assets completely through use of 179 depreciation is expanded to $1 million.
Because the tax rates have been decreased, the tax tables withholding have also been lowered. If you get paid by W-2 and you are getting paid the same amount, you will have a lower amount of taxes withheld in 2018 when compared to 2017. The decrease in federal tax withholding may not match with any reduction in federal taxes when you file your tax return. A review of your withholdings is highly recommended so you are not surprised by the amount of tax.
The above information is a list of some of the most common changes that may affect you.
We can answer your questions:
Will my taxes increase or decrease because of the new tax law?
Are my withholdings and estimated tax payments correct?
Will I qualify for the 20% flow through deduction?
Our tax planning service can review the changes that apply to your situation and discuss how to maximize your tax benefit. Our tax planning services are billed incrementally at $225 per hour. Please call our office at (510) 797-8375 for an appointment.