Many of us know about the recent tax law passing known as the Tax Cuts and Jobs Act of 2017.  The tax law will change but will not impact your 2017 tax return filings but will impact your 2018 tax return filings next tax season.  It is important to understand some of the key differences now to help you strategize your tax planning this year.

Increased Standard Deduction:

The standard deduction will be increasing for most clients.  For example, a couple filing jointly will now be able take a standard deduction of $24,000.00 which is almost twice the amount previously allowed.  This may work out well for many clients who have not itemized their deductions in the past.

Elimination of Personal Exemptions:

The personal exemptions have been eliminated with the new legislation.  Previously this was $4,150.00 for each person/dependent claimed on the tax return.  Larger families who have relied on these valuable exemptions may be negatively impacted.

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Child Tax Credits:

The child tax credits have been greatly expanded under the new law.  The child tax credit has doubled from $1,000.00 per eligible child to $2,000.00 per eligible child.  Many higher income earners will also enjoy an increased phase out threshold that would help retain most of the tax benefit.

Education Tax Breaks:

The education credits and deductions such as the Lifetime Learning Credit and Student Interest deduction have been kept in place.  Also, parents who have invested in education accounts such as 529 plans can use some of those funds to pay for K-12 education in a tax free manner.

Mortgage Interest:

The mortgage interest deduction is still available but the allowable mortgage debt cap was reduced from $1,000,000.00 to $750,000.00.  Additionally, interest accrued on home equity debt will no longer be eligible to be claimed.

State & Local Taxes:

This deduction allows clients to deduct their state and local taxes such as property taxes, sales taxes, etc. on their federal tax return.  This deduction is now limited to $10,000.00 whereas the tax code previously did not place a cap on this deduction.

Charitable Contributions:

These deductions were largely left unchanged in the new tax law.  One key note is that the new legislation now allows clients to deduct up to 60% of their income instead of the previous income cap of 50%.

Medical Expenses:

The medical expenses cap has been reduced from 10% of your adjusted gross income to 7.5% of your adjusted gross income.  This may be particularly beneficial for those clients who have been claiming higher amounts of medical deductions.

Other Eliminated Deductions:

Other deductions such as unreimbursed employee expenses, casualty and theft losses, tax preparation fees and moving expenses will be eliminated.

Pass Through Deduction:

One area of great benefit will be the new tax pass through deduction available to those clients’ who have businesses such as LLCs, Partnerships or S Corporations.  There is a new 20% deduction available that will allow clients to offset some of their pass through income from these entities.  There are many complexities to this new deduction and limitations to examine.  For example, high income earners in professional services such as lawyers, CPAs, doctors, consultants, etc. may be excluded from receiving the full pass through deduction benefit.

As you can see there are many new changes on the horizon and many more that require intense planning.  Over the next few months it is imperative to understand how the new tax legislation will impact you for 2018 and on.

Thanks for stopping by.  Hurry back for more next time.

Staff Writer