Tax Cuts and Jobs Act – (2018 Changes)
The Tax Cuts and Jobs Act was signed by President Trump on December 22, 2017, and includes significant changes to personal and business taxation. Most of the provisions of the new Act take effect for 2018, and a summary can be viewed here.
This page deals with tax changes which will be in effect for 2017, since tax returns prepared during the spring of 2018 will still follow the former code. We will continue to update information regarding the effect of the Tax Cuts and Jobs Act as new information becomes available.
Individual Taxpayer Identification Number (ITIN) Renewal
Individual Taxpayer Identification Numbers obtained prior to January 1, 2013 and not used on three consecutive tax year’s returns will need to be renewed.
Affordable Care Act
Under the Affordable Care Act, the federal government, state governments, insurers, employers, and individuals are given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, or qualify for an exemption. Otherwise, they are required to make a payment when filing their federal income tax return.
The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.
The provision went into effect on Jan. 1, 2014. It applies to each month in the calendar year. The amount of any payment owed takes into account the number of months in a given year an individual is without coverage or an exemption.
For 2016 & 2017 the penalty for not having health coverage has increased to the higher of $695 per adult and $347.50 per child under 18 (maximum $2,085) or 2.5% of household income to a maximum of the national average for Bronze plan coverage. The annual national average premium for a bronze level health plan available through the Marketplace is $2,676 per year ($223 per month) for an individual and $13,380 per year ($1,115 per month) for a family with five or more members.
General Tax Provisions:
Income tax returns are due this year on April 17, 2018 unless an extension is filed and taxes are paid by that date. Please contact us if you believe that you will need an extension for filing 2017 taxes.
Again this year, Internal Revenue Service has increased its scrutiny of returns filed, to ensure that fraudulent claims and false deductions are less likely to be missed. The following areas on a return are likely to increase audit scrutiny:
1. Amount of earnings – Normally about 1% of returns are audited but if income is over $200,000 have a 3.7% chance of audit, while income over $1,000,000 increases the likelihood of audit to 12.5%;
2. IRS have increased matching of 1099 and W2 information to returns, and are likely to issue an audit letter if it appears that an item of income has been missed;
3. Large charitable donations or itemized deductions increase the likelihood of audit; It is important to maintain adequate records to support all deductions;
4. Real estate losses, and “real estate professionals” have been targeted for additional scrutiny;
5. Business meals, travel and entertainment are a favorite target of IRS audits;
6. Claiming too high a vehicle business use percentage can lead to an audit;
7. Filing a business statement showing a large loss consistently, is likely to cause IRS to challenge the business as a “hobby” where losses are not deductible;
8. Cash businesses continue to be a favorite audit target;
9. Any Taxpayer with foreign bank or financial assets is an increased target. IRS has recently been very successful in levying penalties for late, absent, or inadequate reporting of foreign assets and income.
10. IRS has been directed to look more closely at any situation where a Taxpayer has foreign currency transactions in excess of $10,000 reported by banks.
Summary of 2017 Changes for Individuals
The following changes from 2016 have been maintained for 2017:
• A tax bracket of 39.6% has been applied to taxable income in excess of $415,050 (single) or $466,950 (married filing jointly).
• Capital gains will be taxed at 20% for taxpayers in the high 39.6% tax bracket. 0% for those in the 10% and 15% brackets, and 15% for all middle income brackets.
• Net Investment Income Tax (NIIT) of 3.8% will be based on investment income and reported on form 8960 and will affect U.S. citizens and residents only, where income exceeds 200,000 (single) or $250,000 (married filing jointly) or $125,000 (married filing separately). For NIIT purposes, net losses from property dispositions cannot be less than zero (and therefore cannot offset other investment income).
• Itemized Deductions (except for medical and investment expenses) will be phased down by 3% of the income over threshold as noted below.
• Personal exemptions are phased out totally by 2% of income above thresholds.
• Medical and dental expenses must exceed 10% of adjusted gross income to be counted as itemized deductions.
• A .9% Medicare Tax is payable on earned income over the above thresholds used for NIIT on form 8959.
• Health Savings Account (HSA) contribution limits for 2017 are $3,400 for self only and $6,750 for family. An additional $1,000 is available for those over 50 years of age.
• Maximum elective deferral in 401(k), 403(b) 457 and Thrift plans is $18,000, with an additional $6,000 for those age 50 and up.
• Maximum elective deferral in SIMPLE 401(k) and SIMPLE IRA plans is $12,500, with an additional $3,000 for those age 50 and up.
• Maximum contribution limit to Traditional and Roth IRA accounts is $5,500, with an additional $1,000 for those age 50 and up.
• The estate & gift tax exclusion amount is $5,490,000, with estates over the threshold taxed at a maximum of 40%.
• Annual Gift tax exclusion amounts are:
o $14,000 per donee;
o $149,000 gift to noncitizen spouse.
The following table summarizes the income levels at which the new taxes are levied or exemptions reduced for 2017:
Filing Status NIIT AND MEDICARE TAX (Modified Adjusted Gross Income) ITEMIZED DEDUCTIONS & PERSONAL EXEMPTION
(Adjusted Gross Income) NEW HIGH INCOME TAX AND CAPITAL GAINS RATES (taxable INCOME)
Head of Household $200,000 $287,650 $439,000
Single $200,000 $261,500 $413,200
Married Filing Jointly $250,000 $313,800 $464,850
Married Filing Separately $125,000 $156,900 $232,425
• Legally married same sex spouses must file a joint return (or must file using “married filing separately) This subjects all legally married people to the same benefits, and the “marriage penalty”.
• Individuals must file 2017 Income tax returns at these levels.
Single individual (also individuals treated as unmarried for tax purposes $10,400
Single individual, 65 or older $11,950
Married individual, separate return $4,050
Married couple, joint return $20,800
Married couple, joint return, one spouse 65 or older $22,050
Married couple, joint return, both spouses 65 or older $23,300
Head of household $13,400
Head of household, 65 or older $14,950
Qualifying widow(er) (surviving spouse) $16,750
Qualifying widow(er) (surviving spouse), 65 or older $18,000
• Basic standard deduction amounts for 2017 (subject to phase out as noted above):
Filing Status 2017 Standard Deduction Amount
Married filing jointly and surviving spouses $12,700
Married filing separately $6,350
Head of household filers $9,350
Single filers $6,350
• The 2017 personal exemption is $4,050, but this is reduced if income is over $156,900 (married filing separately), $261,500 (single), $287,650 (head of household) and $313,800 (married filing jointly). Itemized deductions are also reduced when income exceeds the above thresholds.
• “Kiddie” tax amount for 2017 is $2,100
• The 2017 standard mileage rate for business use of a car is 53.5 cents per mile, 17 cents for medical and moving, 14 cents for charitable mileage.
• Per diem rates under the high-low method of substantiating lodging & meals expenses are at $282 for high-cost localities and $189 for low-cost localities.
• The transportation fringe benefit exclusion amount for employer provided transit passes and parking is $260 per month.
• The FICA and self-employment maximum earnings for 2017 are $127,200.
• The maximum section 179 deduction for 2017 is $510,000 and the investment limitation is $2,030,000,
• The maximum earned income credit for eligible taxpayers with no children is $506, with one qualifying child $3,373, with two qualifying children $5,572, and with three or more qualifying children $6,269.
• The child tax credit is $1,000.
• Education credits: The Hope Scholarship credit is $2,500, and the American Opportunity and Lifetime Learning credits are $2,000, and begin to phase out at $117,250 for MFJ returns and $78,150 for others
• The 2017 threshold for “Nanny Tax” reporting is $2,000.
Please contact us to review the impact of these or other changes as they may apply to your specific situation.
I. Identity Theft:
The Internal Revenue Service, state revenue departments and the tax industry today released the first in a series of special tax tips designed to provide people critical information to help protect their tax and financial data.
The first of the Security Awareness Tax Tip series provides seven ways people can protect their computers, which takes on added importance as people prepare for the holidays and the 2017 tax season approaches. A new tip will be available each Monday through the start of the tax season
The “Taxes. Security. Together.” campaign – a joint effort announced last week between the IRS, states and the private-sector tax industry — is designed to raise public awareness that even routine actions on the Internet and their personal devices can affect the safety of their financial and tax data. The education campaign will complement the expanded series of important new protections the IRS, states and tax industry are putting in place for the start of the 2016 filing season to address tax-related identity theft.
The tips, which will be in English and Spanish, will be available on IRS.gov as well as through the states and many in the tax industry. Taxpayers can also subscribe to receive these tips by email – as well as other important tax information for the upcoming tax season. People can also subscribe to receive updates in Spanish.
In coming weeks, these tax tips will touch on key topics such as ongoing phishing schemes and aggressive phone scammers posing as IRS officials. Other tips will discuss the importance of protecting sensitive paper and electronic tax records as well as watching out for friends and family who don’t keep their computer’s software security updated.
The IRS, tax industry and states will also be releasing additional YouTube videos highlighting these tips as tax season approaches.
II. Tips for Gifts & Charitable Donations:
IRS reminds individual and business tax payers about several important tax law provisions which have taken effect in recent years in regards to making year-end gifts to charity.
Some of the changes taxpayers should keep in mind include:
A- Charitable Contributions of Clothing and Household Items
Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.
B- Monetary Donations
A taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
The IRS offers the following additional reminders to help taxpayers plan their holiday and year-end gifts to charity:
• Qualified charities. Check that the charity is eligible. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the tool’s database.
• Year-end gifts. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2016 count for 2016, even if the credit card bill isn’t paid until 2017. Also, checks count for 2016 as long as they are mailed in 2016.
• Itemize deductions. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction. This includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2015 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
• Record donations. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
• Special Rules. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all non-cash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
IRS.gov has additional information on charitable giving, including:
• Charities and Non Profits
• Publication 526, Charitable Contributions
• Online mini-course, Can I Deduct My Charitable Contributions?
2018 tax year updates coming soon