The standard deduction has increased for 2018. (see below)
Filing Status Standard Deduction for 2018 Change From 2017
Single $12,000 +$5,650
Married filing jointly $24,000 +$11,300
Head of household $18,000 +$8,650
Married filing separately $12,000 +$5,650
Medical expense deduction
The threshold for the medical expense deduction is lowered to 7.5 percent of adjusted gross income for regular tax and Alternative Minimum Tax purposes. It reverts back to 10 percent in 2019.
The SALT cap
The state and local tax deduction is capped at $10,000. This includes both state income or sales taxes and property taxes. State efforts to do workarounds for the limit through state charitable contributions with state income tax credits may not work due to IRS proposed regulations limiting the charitable deduction to the extent of any state or local tax credits. This also impacts pre-existing state charitable contribution programs. If the taxpayer can allocate part of the SALT to a business, that portion escapes the cap.
Charitable contributions
The deduction limit is increased to 60 percent of AGI. There is no deduction if the contribution secures athletic event seating rights.
Taxpayers will need contemporaneous substantiation for any contribution of $250 or more, even if the charity has reported contribution to IRS.
Miscellaneous itemized deductions
The deduction for miscellaneous itemized deductions subject to the 2 percent of AGI floor was repealed through 2025, including unreimbursed employee business expenses, investment expenses, tax preparation fees, and hobby expenses.
The Child Tax Credit
For 2018, the CTC has increased from $1000 to $2000 for qualifying children. To claim the increased child tax credit in 2018, taxpayers will need Social Security numbers for every qualifying child.
Qualifying relative credit
There is a new $500 deduction for a qualifying relative. The taxpayer ID number is sufficient for this credit, which can apply to a child that does not qualify for the CTC.
The Affordable Care Act
The individual mandate is still required for 2018 -- it expires for 2019.
Mortgage interest deduction
Be careful of any mortgage modification that included cash out, even if just for closing costs – it may result in loss of the grandfathered $1 million debt limit and become a $750,000 debt limit. No home equity interest deduction can be claimed unless you can document the expenses to buy, build or improve the home.
Moving expenses
The deduction and exclusion are gone for everyone -- except members of the Armed Forces.
Miscellaneous itemized deductions
The deduction for miscellaneous itemized deductions subject to the 2 percent of AGI floor was repealed through 2025, including unreimbursed employee business expenses, investment expenses, tax preparation fees, and hobby expenses.
The 20 percent deduction for owners of pass-through businesses
The deduction is claimed on the new Line 9 on the draft Form 1040. There is a need to determine qualified business income, and taxpayers may also need to determine if theirs is a specified service trade or business, if there are W-2 wages, and the unadjusted basis of qualified property immediately after acquisition.
For owners of partnerships and S corporations, business information should be provided in Box 20 of Form K-1.
FOR BUSINESSES
Business expenses
There are higher expense limits for capital purchases under Code Sec. 179 and bonus depreciation (currently 100 percent).
Be careful, however – higher expense is likely to reduce the 20 percent deduction for owners of pass-through businesses.
Entertainment and meal expenses
There is no deduction for entertainment expenses. The 50 percent deduction for meal expenses survives if the taxpayer can identify the meal expense separately from the entertainment expense.
Paid family and medical leave
There is a new credit for paid family and medical leave.
Out-of-state sellers
Many states have implemented the Supreme Court’s Wayfair decision requiring out-of-state sellers to collect sales tax.
This is only a summary f some of the changes that go into effect in 2019.
If you have questions, feel free to contact me at here to book a 15-minute consultation or email me at colorsconsulting@gmail.com
