Q: I know it’s late in tax season, but I’m just getting around to it. Were there any major changes to the tax law in 2018?
A: Yes. It’s that time of year again. Millions of Americans are preparing their 2018 tax returns and grappling with some big changes as a result of the Tax Cuts and Jobs Act of 2017 (TCJA). Their impact on you could be significant. Here’s an overview of key tax changes affecting individuals.
Your 2018 Taxes: What to expect this filing season
Form 1040 makeover
The U.S. Individual Income Tax Return – Form 1040 – has a new, streamlined look for 2018. The new form is about half its previous size but is accompanied by various new supplementary schedules that taxpayers must file as required. The IRS anticipates that taxpayers with straightforward tax situations will only need to file the new 1040 with no additional schedules.
Deductions
The TCJA almost doubled the basic standard deduction for each filing status, to $12,000 for a single filer and $24,000 for married filing jointly. As a result of these changes, fewer households are likely to benefit from itemizing their deductions.
In addition, TCJA eliminated certain itemized deductions and placed new restrictions on others. Most notably:
• The deduction for state and local taxes (SALT) is capped at $10,000 ($5,000 if married, filing separately).
• Home mortgage interest is still tax deductible. However, for those who buy a property after December 15, 2017, there’s a new limit on the amount of debt that can qualify: generally $750,000 ($375,000 if married, filing separately).
• Interest on home equity debt is no longer deductible.
• Regardless of your filing status, dependents, or whether you use the standard deduction or itemize, there is no deduction available for personal exemptions in 2018.
• The floor applicable to the itemized medical expense deduction is 7.5 percent of adjusted gross income (AGI).
• No itemized deduction is allowed for personal casualty and theft losses unless the loss is attributable to a federally declared disaster.
• There is no itemized deduction for unreimbursed employee business expenses and certain miscellaneous expenses that, in total, exceed 2 percent of AGI.
Tax rates and brackets
As before, the tax rate schedules are graduated so that a certain amount of income is taxed at the lowest rate, an amount over that is taxed at the next lowest rate, and so on. The table below* shows the 2018 tax rates and brackets for each filing status.
Capital gains rates remain the same, but there are new income breakpoints for determining when the rates apply. For more information on capital gains rates and other information on capital gains and losses, see the https://www.irs.gov/newsroom/helpful-facts-to-know-about-capital-gains-and-losses.
Alternative Minimum Tax
The TCJA kept the alternative minimum tax (AMT) in place for individual taxpayers but temporarily increased the AMT exemption amounts ($70,300 for single filers, $109,400 for married, filing jointly) and the income thresholds for phase out of the exemption amounts. As a result, fewer taxpayers are expected to be subject to the AMT.
What else has changed for 2018?
Some other important points to keep in mind:
• A larger child tax credit of up to $2,000 per child under age 17 is available, and the income thresholds for phase out of the credit are higher.
• Up to 20 percent of qualified business income passed through from partnerships, S corporations, and sole proprietorships may be deductible on owners’ personal tax returns. (Various restrictions apply.)
There’s more to the new tax rules than can be covered in a general overview such as this one. For further information about the law and its impact on your specific tax situation, be sure to secure professional advice.
Jeremy R. Gussick is a CERTIFIED FINANCIAL PLANNER™ professional affiliated with LPL Financial, the nation’s largest independent broker-dealer.* Jeremy specializes in the financial planning and retirement income needs of the LGBT community and was recently named a 2018 FIVE STAR Wealth Manager as mentioned in Philadelphia Magazine.** He is active with several LGBT organizations in the Philadelphia region, including DVLF (Delaware Valley Legacy Fund) and the Independence Business Alliance (IBA), the Philadelphia Region’s LGBT Chamber of Commerce. OutMoney appears monthly. If you have a question for Jeremy, you can contact him via email at [email protected].
Jeremy R. Gussick is a Registered Representative with, and securities and advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
This article was prepared with the assistance of DST Systems Inc. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This communication is not intended to be tax advice and should not be treated as such. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Please consult me if you have any questions. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
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*As reported by Financial Planning magazine, June 1996-2018, based on total revenues.
**Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2018 Five Star Wealth Managers.