It’s tax season and many taxpayers and CPAs, including our own John Seevers and his team, are working overtime to answer client questions before tying up and turning in their 2018 tax returns. This year was more challenging than most with new and revised tax laws taking effect for the first time.
The IRS is still issuing guidance on the extensive changes enacted in the Tax Cuts and Jobs Act of 2017, leaving CPAs and taxpayers to file returns with available information. A lot has changed, including tax brackets, standard deductions and tax credits. Here’s a recap of some of the provisions for tax year 2018:
- The standard deduction is nearly doubled.
- The deduction for state and local income or property taxes is capped at $10,000 ($5,000 for married taxpayers filing separately).
- The threshold for deducting medical expenses is lowered to 7.5% of a filer’s adjusted gross income (2017 and 2018).
- Moving expenses are not deductible, except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station.
- Personal casualty losses are deductible only if the loss is attributable to a federally declared disaster.
- All miscellaneous itemized deductions subject to the 2% floor under current law are repealed through 2025.
- The overall limitation on itemized deductions has been suspended through 2025.
Child tax credit increase
- Increase in child tax credit amount for qualifying children under 17, doubling the basic credit amount from $1,000 to $2,000 per qualifying child and increasing its refundable portion.
- Doubles the exemption for the estate tax; estates up to $11.2 million are exempt.
- For 2018 through 2025, the child’s net unearned income is taxed at rates applicable to trusts and estates.
- Permanently cuts the top corporate tax rate to 21%.
Pass-through entity deduction
- A new deduction of up to 20 percent of qualified business income (QBI) from partnerships, sole proprietorships, or S corporations.
- Individuals earning $157,500 and married couples earning $315,000 are eligible for the fullest deduction.
100% bonus depreciation and more
- Allows 100% first-year “bonus” depreciation for property—new and used, generally–acquired and placed in service after Sept. 27, 2017.The amount of the bonus steps down 20% each subsequent year (80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026).
- The dollar limit for Sec. 179 expensing was permanently increased for 2018 to $1 million in total cost per tax year.
- Increase in the threshold at which the limitation is reduced to $2.5 million in Sec. 179.
Net Operating Losses limited
- Beginning in tax year 2018, most with net operating losses (NOLs) may no longer be carried back, and the maximum amount of taxable income that can be offset with NOL deductions is generally reduced to 80%.
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