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Important 2018 Tax Reform Changes

January, 2018.

As most of the country endures the winter weather, taxpayers huddle by the fire to sift through recent tax law changes. This law’s full effect upon American wallets will take several years to reach full impact. Few modifications will affect your 2017 taxes, however, the law begins January 1, 2018. Its full impact, though, won’t be felt until the filing of your 2019 Federal tax returns. Here is a quick overview of what you can expect.

Tax Rate Changes

Tax rates for individuals and corporations have been revised. The highest individual tax rate will be reduced to 37%, while the corporate tax rate is a flat 21%.

Standard Deduction Increases

Personal Exemption deductions are now prohibited.

Increased Child Tax Credit/New Dependent Credit

Each child credit increases to $2,000, of which $1,400 is refundable. Each non-child dependent now receives a $500 credit. Many more taxpayers will be eligible for this credit.

Disappearing Deductions

Beginning in 2018, the following items become disallowed deductions:

  • Annual state income tax/property taxes exceeding $10,000
  • Moving expenses (military exceptions apply)
  • Employee business expenses (not applicable to business owners) – mileage, travel, home-office expenses, etc.
  • Business entertainment deductions are no longer acceptable. Meals remain 50% deductible
  • Mortgage interest paid for acquisition debt exceeding $750,000, or equity debt for any taxpayer

Individual Benefit Additions

  • The AGI threshold for medical expenses temporarily drops to 7.5% for 2017-2018
  • The AMT threshold is higher. Fewer middle-income taxpayers will be impacted by AMT
  • The Estate Tax Exclusion almost doubles to $10 million.
  • The Annual Gift Tax Exclusion remains unchanged. The maximum gift tax rate is 35%

Small Business Benefits

Small Business Owners, in 2018, will be able to apply a 20% ‘net business income’ deduction. Only applicable to sole proprietorships, certain LLC’s, partnerships, S corporations, and rental properties.

Of note:

Recent tax law modifications affect taxpayer’s liabilities differently.
After 2025, many individual tax cuts are phased-out.
Check with your tax preparer for a comprehensive analysis.