Hartman Accounting - When Experience Matters

2018 Changes due to the Tax Cuts and Jobs Act (TCJA)

Changes affecting most taxpayers

Changes to itemized deductions

On December 22, 2017, the President of the United States signed into law major tax reform in the Tax Cuts and Jobs Act (TCJA). The TCJA made widespread changes to the Internal Revenue Code which will affect your 2018 tax return. Here are some of the more common changes that could affect your tax return.

Personal exemption rate is reduced to zero. Prior to 2018, a personal exemption amount of over $4,000 per person could be used to reduce taxable income. This personal exemption amount has been reduced to zero for 2018 through 2025.

Standard deduction increase.

The standard deduction for most returns has been almost doubled over the amount that was allowed last year. The deduction for Single and Married Filing Separately returns is $12,000, Head of Household returns is $18,000, and Married Filing Jointly and Qualifying Widow(er) returns is $24,000. The additional amounts for being over 65 or blind will still be allowed.

Because of this change, this year many taxpayers will find that claiming the standard deduction instead of itemizing deductions will give them a lower tax.

SSN Required for Child Tax Credit (CTC). An SSN is now required to claim CTC. No credit will be allowed for any qualifying child unless the taxpayer provides that child’s SSN or a Work Authorization Permit from Homeland Security. Prior to this year, CTC could be claimed for a child who had an ITIN.

Increase in CTC. The Child Tax Credit has been increased from $1,000 to $2,000 for 2018. The modified adjusted gross income threshold where the credit is phased out is $400,000 for joint filers and $200,000 for all others (up from $230,000 and $115,000, respectively), so many more taxpayers will be able to claim this credit. The maximum age for a child eligible for the credit remains 16 (at the end of the tax year). New Credit for Other Dependents (ODC). Beginning in 2018, a new $500 credit is available for dependents who do not qualify for the CTC. Most dependents listed on the tax return who do not qualify for CTC will now qualify for the smaller ODC, including parents who are claimed as dependents.

Medical.

For taxpayers of all ages, the deduction threshold for medical expenses is 7.5% of AGI.
State and local taxes (SALT). There is a cap on the deduction for state and local taxes paid. The deduction for state and local income taxes, real estate taxes, and personal property taxes combined is limited to $10,000 per return, ($5,000 for Married Filing Separately returns).

Limitation on deduction for home mortgage interest. You may be able to deduct mortgage interest only on the first $750,000 ($375,000 if married filing separately) of indebtedness. Higher limitations apply if you are deducting mortgage interest from indebtedness incurred on or before December 15, 2017. No deduction for home equity loan interest. No matter when the indebtedness was incurred, you can no longer deduct the interest paid on a home equity loan unless loan proceeds were used to buy, build, or improve your home.

Limitation on the deduction for casualty and theft losses.

You can no longer deduct a personal casualty or theft loss unless the loss occurred in a federally declared disaster area.

Deductions for employee business expenses eliminated. One of the biggest changes under this new law was the elimination of the deduction for unreimbursed employee business expenses beginning with 2018 tax returns. This effectively means that employees will no longer be able to offset their taxable income by common business expenses they incur. (This change under the TCJA does not affect self-employed individuals.)

Form 2106, Employee Business Expenses, is now to be used only for certain categories of employee:
• Qualified performing artists
• Fee-based state or local government officials
• Armed forces reservists
• Employees with impairment-related work expenses

Standard mileage rate.

The 2018 standard mileage rate is 54.5 cents per mile for business miles.

Moving expenses.

Beginning January 1, 2018, moving expenses cannot be deducted by most people.

Active duty members of the U.S. Armed Forces who move pursuant to a military order and incident to a permanent change of station can still deduct moving expenses and exclude reimbursed moving expenses. Additionally, most taxpayers cannot exclude employer reimbursements for moving expenses from income.

Qualified Business Income Deduction (QBID).

A new deduction for qualified business income from a trade or business, including sole proprietorships, S corporations, or partnerships, is available on Form 1040. QBI doesn’t include W-2 wages. The deduction is subject to many limitations, such as income level and type of business. If you have QBI, you can reduce your taxable income, whether you itemize deductions or claim
the standard deduction. In its simplest form, if adjusted gross income is under $157,500 ($315,000 for joint filers) you can deduct 20% of your QBI from income before computing your tax.

Alternative Minimum Tax (AMT).

Fewer taxpayers will be subject to AMT due to increased exemption amounts and phaseout thresholds. Certain ITINs expired. As of December 31, 2018, ITINs with middle digits “73,” “74,” “75,” “76,” “77,” “81,” or “82” in the fourth and fifth positions have expired. The ITIN must be renewed if it will be included on a
federal tax return filed in 2018.

Depreciation changes.

There are numerous changes to how depreciation can be claimed on assets purchased during 2018. Many assets can be entirely written off in 2018 rather than being depreciated over several years.

Healthcare Mandate Penalty Repealed for 2019.

Beginning in 2019, individuals who fail to carry health insurance will no longer be required to pay an individual shared responsibility payment with their tax return.

We look forward to helping you get the most benefit from these tax law changes.

Please contact us for more information.

No health insurance?

See if you’ll owe a fee

For plan years through 2018, if you can afford health insurance but choose not to buy it, you may pay a fee called the individual Shared Responsibility Payment. (The fee is sometimes called the “penalty,” “fine,” or “individual mandate.”)
Starting with the 2019 plan year (for which you’ll file taxes in April 2020), the Shared Responsibility Payment no longer applies.

The fee for 2018 plans and earlier

The fee for 2019 plans and beyond

How to calculate the fee for each plan year

The fee is calculated 2 different ways — as a percentage of your yearly household income, and per person. You’ll pay whichever is higher.
  • Using the percentage method, only the part of your household income that’s above the yearly tax filing requirement is counted.
  • Using the per person method, you pay only for people in your household who don’t have insurance coverage.
If you have coverage for part of the year, the fee is 1/12 of the annual amount for each month you (or your tax dependents) don’t have coverage. If you’re uncovered only 1 or 2 months, you don’t have to pay the fee at all. Learn about the “short gap” exemption.
Fee amounts for 2017 (you’ll file taxes in April 2018)
Per person method Income percentage method Maximum amount
$695 per adult

$347.50 per child under 18

2.5% of yearly household income If per person method is higher: 2.5% of yearly household income

If income percentage method is higher: Total yearly premium for the national average price of a Bronze plan sold through the Marketplace

Fee amounts for 2018 (you’ll file taxes in April 2019)
Per person method Income percentage method Maximum amount
2017 amount plus any inflation adjustment to be determined 2.5% of yearly household income If per person method is higher: 2.5% of yearly household income

If income percentage method is higher: Total yearly premium for the national average price of a Bronze plan sold through the Marketplace

Fee amounts for 2019 and beyond (you’ll file taxes in April 2020 and beyond)
Per person method Income percentage method Maximum amount
The Shared Responsibility Payment no longer applies The Shared Responsibility Payment no longer applies The Shared Responsibility Payment no longer applies

For plans 2018 and earlier, you can use this IRS tool to estimate your individual responsibility payment.

More answers: If you owe a fee

It depends on your household income and the plan year. For 2018 plans and earlier, if insurance is unaffordable to you based on your income, you may qualify for an exemption from the fee. Other exemptions are based on low income too. Learn more about exemptions and how to claim them.

The IRS will hold back the amount of the fee from any future tax refunds. There are no liens, levies, or criminal penalties for failing to pay the fee.

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