The 2018 year is coming to an end and the tax filing season is fast approaching. Now is the time to make sure you are ready for the many changes took effect on January 1 based on the legislation known as the Tax Cuts and Jobs Act (TCJA), the biggest change since 1986. I’d like to share with you few highlights to clarify and eliminate confusions for 2018 tax returns for individual taxpayers
- Tax Rates has been reduced. This mean most people will pay less tax this year. For 2018, the tax rates are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. This change affect every taxpayer who receives a paycheck. Taxpayers must generally pay at least 90 percent of their taxes throughout the year through withholding, estimated or additional tax payment, or a combination of both. Most of the taxes must be paid during the year as the income is earned or received. If not, taxpayers may owe an estimated tax penalty at the time of filing.
- Changes to Standard and Itemized Deduction. The Tax Cuts and Jobs Act nearly doubled standard deductions. When taxpayer takes the standard deduction, the deductions for mortgage interest, state taxes, and charitable deductions can’t be itemized on Schedule A. Starting in 2018. The standard deduction for each filing status is: $12,000 for single or married filing separately, $24,000 for married filing jointly or qualifying widow(er), and $18,000 for head of household. If the standard deduction is higher than the itemized, taxpayer should use the standard deductions. For 2018, the following changes has been made to several itemized deductions that can be claimed on Schedule A (Itemized Deductions):
- Limit on overall itemized deductions suspended. This means itemized deductions are no longer limited if adjusted gross income (AGI) is over certain amount.
- Deduction for medical and dental expenses modified. Taxpayer may deduct certain unreimbursed medical expenses that exceed 7.5% of 2018 adjusted gross income
- Deductions for state and local income, sales and property tax modified. Total deduction is $10,000 ($5,000 for married filing separately). Any amount paid above this amount cannot be deducted.
- Deduction for home mortgage and home equity interest modified. The deduction is limited to interest paid on loan secured by main home or second home. The interest paid on home equity loan is not deductible unless the loan proceeds were used to buy, build, or substantially improve main home or second home.
- Limit for charitable contributions modified. If itemize, taxpayer may deduct cash contribution up to 60% of adjusted gross income for 2018
- Deduction for casualty and theft loses modified. Net personal casualty and theft loses are deductible only to the extent they’re attributable to a federally declared disaster. Claims must include the FEMA code assigned to the disaster.
- Miscellaneous itemized deductions suspended. The deductions for job-related expenses or other miscellaneous expenses that exceed 2% of adjusted gross income is suspended. This includes unreimbursed employee expenses such as uniforms, union dues, and the deduction for business-related meals, entertainment, and travel, as well as investment expense and safe deposit box.
- Deduction and Exclusion for Moving Expenses Suspended. Unless the taxpayer is a member of U.S. military or on active duty, no deduction for moving expenses. An amount reimbursed by an employer will be taxable income.
- Deduction for Personal Exemption Suspended. Taxpayer will not be able to reduce the income that is subject to tax by the exemption amount for each person included on the taxpayer return.
- Reporting Healthcare Coverage. For tax year 2018, the IRS will not consider a return complete and accurate if taxpayer do not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment on the tax return.
Identity Theft continue to be priority to the IRS and to your tax professional. Your tax professional should have implemented security measure in the use of the tax software and safe method in exchanging documents. I am constantly looking at ways for my clients’ convenience and safely exchange documents. My investment in Client Portal Service will be available to give my clients the ability to securely view, download, and upload documents.
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Intisar Assaf, CPA
F & E Accounting and Tax Service, L.L.C