Accounting

2018 Tax Bill Update: Did you win or lose?

Most of us will see the impact of the new tax bill in the year 2018. What the new tax plan encompasses for Americans depends on various factors such as total income, sources of income, home ownership etc. Below are some of the highlights of the new bill and the effect it will have on your 2018 taxes:

 

Individual Tax Updates:

 

Tax cuts for individuals: Top rate reduced from 39.6% to 37%.

 

  1. Personal exemptions: Eliminates personal exemption except for the members of military.
  2. Standard Deduction: Increases the standard deduction to $12,000/$24,000.
  3. State and Local taxes: Now limited to $10,000.
  4. Mortgage interest: Limited to payment on $750,000 debt.
  5. Medical Expenses: You can deduct out-of-pocket expenses in excess of 7.5% of AGI.
  6. Childcare credit: Increases childcare tax credit to $2,000 and refundable portion to $1,400.
  7. Health insurance penalty: Eliminates the penalty for not having health insurance (starts in 2019).
  8. AMT: Increases the exemption for individuals so fewer will pay AMT.
  9. 529 College savings accounts: The tax-free savings of up to $10,000, have been expanded to be used for k-12 programs.
  10. Estate tax: Increase in threshold to estate above $11.2 million
  11. Schedule A Changes:
    1. Moving Expenses: Eliminated
    2. Medical Expenses: Expanded by reducing threshold to 7.5% from 10%
    3. Overall Limits on itemized deductions: Repealed.

 

Business Tax Update:

 

Tax cuts for corporations: Top rate reduced from 35% to 21%.

  1. Pass through entities: 20% income deduction available for certain pass-through entities such as S corporations.
  2. Business Interest: Caps deduction at 30% of earnings before interest, taxes, depreciation, and amortization.
  3. AMT for businesses: Eliminated
  4. Section 179 Expensing: Increases limits to $1 Million
  5. Net Operating Losses: Limits deductions to 80% of taxable income
  6. Research and Development Expenditure: This would now need to be written off gradually.
  7. Equipment costs: Cost of equipment will be allowed to be deducted over a five-year period.
  8. NOL: Limited to 80% of taxable income; Carryforward period made indefinite; no carrybacks
  9. Section 179: Increases the amount a taxpayer may expense to $1,000,000
  10. Entertainment Expenses: Repealed-no deduction allowed for expenses even if directly connected to business (Meals still 50% deductible).
  11. Food and Beverage expense for employee: 50% deductible instead of 100%.