Editor's Note: This post was originally published in the March 2018 Edition of Odyssey NexGen Newsletter. Curious about Odyssey's NexGen program? Email Anne.Simpson@odysseypfa.com to learn more.
A new year often brings about new changes, and 2018 did not disappoint with the implementation of the new tax legislation. You may be impacted by some of these selected tax changes, but note - most of these changes for individuals are temporary, ending at the end of 2025. Below are some of the highlights:
- New Income Tax Brackets: Income tax rates are reduced for all - seven brackets remain, but are lowered to between 10-37%.
- Standard Deduction: The standard deduction doubled - increasing to $12k for single filers and $24k for married filing jointly (MFJ). This makes up for eliminating the personal exemptions.
- Child Tax Credit: If you have a child age 17 or younger, you qualify for a child tax credit of $2k and $1,400 of the credit is refundable, meaning you may get money back if no tax is owed.
- Above-the-line Deductions:
- Moving expense deductions are eliminated.
- Alimony beginning in 2019 is no longer deductible by the payor, nor taxed to the recipient.
- Limited Itemized Deductions:
- State and local income and property tax deductions are now capped at $10k.
- Interest on new mortgage debt is deductible up to $750k (existing mortgage debt is still deductible up to $1MM).
- Miscellaneous Itemized Deductions: All miscellaneous itemized deductions are eliminated, including investment management and tax preparation fees, home office expenses, and unreimbursed business expenses.
- 529 Plans: Distributions from 529 plans can now be used for qualified K-12 expenses up to $10k per year.
- Retirement Plans: Contributions increased by $500 (e.g., you can now contribute up to $18,500 to your 401k for 2018 if under age 50); however, IRA contributions remain unchanged (e.g., $5,500 if under age 50).
- Healthcare Individual Mandate: The penalty for not having health insurance will be $0 starting in 2019. The current penalty (i.e., paying the higher of $695 or 2.5% of income) still applies for tax years 2017 and 2018.
If you want to see how your taxes for 2018 will compare to 2017, ask your CPA (or use your tax software) for a projection of your 2018 taxes. Disclaimer: Odyssey/Cetera entities do not provide tax advice. Please consult your accounting or tax professional.
Approved: AC - 3/14/18