Here’s a quick summary of the tax code updates that may affect your 2018 federal tax return.
New Tax Brackets
|2017 Rates||2018 Rates|
|10% $0-$9,525||10% $0-$9,525|
|15% $9,525-$38,700||12% $9,525-$38,700|
|25% $38,700-$93,700||22% $38,700-$82,500|
|28% $93,700-$195,450||24% $82,500-$157,500|
|33% $195,450-$424,950||32% $157,500-$200,000|
|35% $424,950-$426,700||35% $200,000-$500,000|
|39.6% over $426,700||37% over $500,000|
|Married Joint Filers|
|2017 Rates||2018 Rates|
|10% $0-$19,050||10% $0-$19,050|
|15% $19,050-$77,400||12% $19,050-$77,400|
|25% $77,400-$156,150||22% $77,400-$165,000|
|28% $156,150-$237,950||24% $165,000-$315,000|
|33% $237,950-$424,950||32% $315,000-$400,000|
|35% $424,950-$480,050||35% $400,000-$600,000|
|39.6% over $480,050||37% over $600,000|
Most individual tax rates have been reduced. Although the IRS adjusted the withholding tables in February of 2018 to produce the correct amount of withholding for those with simple tax situations, they don’t reflect some of the changes that impact more complex returns. Please bring your most recent pay stubs to your tax appointment so we can go over your 2019 withholding with you.
Standard Deduction Increase
For single filers, the standard deduction will increase from $6,350 to $12,000. For married couples filing jointly, it increases from $12,700 to $24,000. The result of this will be a large drop in the number of taxpayers who benefit from itemizing.
Personal and Dependent Exemptions Eliminated
Under the new law the personal and dependent exemptions of $4,150 were eliminated. This may negate any tax savings from doubling the standard deduction for couples with three or more dependents.
Child Tax Credit Increase
The Child Tax Credit for children under 17 has doubled to $2000 and the income ceiling for claiming it has been raised to $200,000 for single parents and $400,000 for married couples.
New Dependent Credit
A new $500 credit has been created for other dependents who do not meet the requirements for the child tax credit, including dependent children over age 17, adult partners, elderly parents, and disabled adult children.
Mortgage Interest Deduction Reduced
The amount of mortgage interest that is deductible has been lowered. The interest on mortgage debts of up to $750,000 is deductible, down from mortgage debts of $1 million. This change only applies to new mortgages created after December 31, 2017. The $750K limit applies to the combined amount of loans used to fund or improve the taxpayer’s main and/or second home. Any interest on the portion of debt above $750,000 is not deductible. The deduction of interest on home equity loans of up to $100,000 has been eliminated unless the debt was used to “buy, build, or substantially improve the taxpayer’s home that secures the loan”, in which case it is subject to the limitations above.
State and Local Tax Deduction Capped
The State and Local Tax Deduction has been capped at $10,000. This change will only affect those who will still itemize under the new plan, capping the previously unlimited deduction for state and local property and income or sales taxes.
Itemized Deduction Limits Eliminated
Previously, itemized deductions phased out if your adjusted gross income exceeded $313,800 for married couples filing jointly, $261,500 for single filers, and $287,650 for heads of household. These limits have been repealed beginning with the 2018 tax year through 2025.
Other Eliminated Deductions
All itemized deductions subject to the 2% floor have been eliminated. Previously, taxpayers could deduct certain expenses in excess of 2% of their AGI. These deductions have all been suspended through 2025. These include unreimbursed job expenses such as uniforms, union dues, meals, entertainment, and travel, tax preparation fees, investment expenses, and safe deposit box fees.
The casualty loss deduction is suspended, as is the moving expense deduction for everyone except active duty military personnel.
Annual Inflation Updates
Standard Mileage Rate
The standard mileage rate for the cost of operating your car for business is 54.5 cents a mile. Please note that in addition to mileage you are also allowed to deduct tolls, parking, property taxes and interest. The standard mileage rate allowed for the use of your car for medical purposes is 18 cents a mile and the standard mileage rate for the use of your car for volunteer services for a charity is 14 cents a mile for the entirety of 2018. (You can keep track of your mileage by using an App on your smart phone called Mile IQ. If you are self-employed and drive for business purposes, you need to keep track of time, place, and purpose for all your mileage driven. We suggest you take a picture of your odometer on January 1st and December 31st, and save receipts that document your mileage, such as oil change receipts.)
IRA and Retirement Account Contributions
The annual contribution limit for both Roth and Traditional IRAs remains at $5,500 for 2018 and increases to $6,000 for 2019 ($1,000 additional if age 50 or older). Contributions to 401(k) and similar retirement plans are $18,500 for 2018 ($6,000 additional if age 50 or older) and will increase to $19,000 for 2019 with the same additional amount. Self-Employment Pension Plan (SEP) maximum contributions remain at $55,000 for 2018.
Health Savings Accounts (HSAs) Contributions
The maximum HSA contribution increased to $3,450 ($6,900 for family coverage), with an additional $1,000 allowed if age 55 or older. Please note that you have until April 16, 2019 to contribute to your HSA for a 2018 deduction.
Other Items of Note
Need a Copy of Your Previous Return?
You can obtain a record of your past tax returns and other tax documents. IRS transcripts are often used to validate income and tax filing status for mortgage applications, student and small business loan applications, and during tax preparation. You can obtain them directly from the IRS using their Get Transcript online service (service may be limited during the government shutdown).
Charitable deductions must be supported by documentation for every $1.00 you claim. For donations over $250.00, documentation must be obtained from the charity. The IRS has been auditing non-cash contributions. We will only include non-cash contributions on your tax return if a worksheet is prepared. A worksheet is attached here.
The IRS will begin accepting returns on January 28, 2019. Schedule early. Our calendar fills up fast as people begin to receive their W-2s. Take the stress out of filing by scheduling as soon as you have your documents together. Leave yourself time before the April 15th deadline to catch and sort out any issues that arise. By scheduling with us and filing earlier, you get your refund faster or have more time to pay what you owe, and help protect any refund from identity thieves.