ROTH TAX & FINANCIAL SERVICES - David Roth, EA

Professional Tax Preparation & Investment Planning

New Seasonal Office - 142 West 57th Street, 11th Floor, New York, NY 10019



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****THE FOLLOWING IS EXTREMELY IMPORTANT INFORMATION

As most are aware, tax reform has passed in Congress.  These changes will not affect the upcoming tax filing but will affect your 2018 year and it's filing at the beginning of 2019.  Some of you will see benefits from these changes but many of you will not. I will attempt to outline these changes and provide concrete examples to help you better understand them.

The current 7-tier tax bracket will be reduced to four tax brackets. They are as follows:

SINGLE FILERS
10% - Income $0 to $9,525
12% - Income $9,526 to $38,700
22% - Income $38,701 to $82,500
24% - Income $82,501 to $157,500

32% - Income $157,501 to $200,000

35% - Income $200,001 to $500,000
37% - Income $500,001 and up

MARRIED FILERS
10% - Income $0 to $19,050
12% - Income $19,051 to $77,400
22% - Income $77,401 to $165,000

24% - Income $165,001 to $315,000

32% - Income $315,001 to $400,000

35% - Income $400,001 to $600,000
37% - Income $600,001 and up

This next section is particularly important to your deductions as taxpayers.

STANDARD DEDUCTION:
The standard deduction is for those that don’t have deductions that add up to or more than the standard deduction that the government gives you. The current 2017 standard deduction is $6,350 for a single filer, $9,350 for head of household and $12,700 for a married filer. Under the 2018 plan they would nearly double the standard deduction so that single filers can deduct $12,000, $18,000 for head of household and married filers can deduct $24,000. This sounds appealing on paper but there are hidden factors here. Under our current system each taxpayer AND EACH OF THEIR CHILD DEPENDENTS get an additional $4,050 deduction called personal exemptions. This deduction has been eliminated.  For example in the current system a married couple with 3 children would get a standard + personal exemption deduction of $32,950 ($12,700 for married filers + $8,100 for their personal exemption + $12,150 for their three children). But in the proposed House tax plan that same family would get a total of $24,000 in the deduction.


CHILD CREDITS:

The credit would increase to up to $2,000 per child, and the first $1,400 would be refundable, meaning the credit could reduce your tax liability below zero and you would still be able to receive a tax refund. The cut off for the tax credit would increase from $110,000 to $400,000 for married couples filing jointly. The expanded credit ends after 2025.


ITEMIZED DEDUCTIONS:

This is the area that has the most dramatic changes. The new law will raise the standard deduction and therefore eliminate most of the itemized deductions. Itemized deductions are things like medical expenses, state and local taxes, mortgage interest, property and personal property taxes, charitable contributions, tax preparer expense & unreimbursed employee job expenses. If these deductions add up to more than your allotted standard deductions then you are allowed to use those to your benefit instead of the standard deduction.

The following aforementioned deductions remain:

  • Charitable contributions remain but with the increased standard deduction it may discourage taxpayers that normally contribute as they might not get the deduction.  The is an idea kicking around of having a donor-advised fund.  This would allow the taxpayer to take multiple years of payments in to the fund and add them up and claim them in one particular year.
  • Property taxes, state and local tax & sales tax.  This has been bundled into one.  You can chose two of these three to deduct but they are capped in total at $10,000.  This negatively impacts home owners particularly in high taxed regions of the country.
  • Mortgage interest but again not for all. This new plan would reduce your allowed deduction to up to two mortgages totally no more than $750,000. This again punishes those in higher housing markets.
  • ​Student loan interest is still allowed as a deduction up to $2,500 with certain income limitations.

 

The following are the deductions which the new law would eliminate:


  • Unreimbursed Employee Expenses - This is of particular interest to those in the freelance workforce. A good example of this is the performing artist. These employees are required to stay up on their craft at their own expense. Some of these are as follows:
    • Many of these artists pay an agent at least 10% of their income.
    • Most pay 2% to 4% to their union from weekly incomes.
    • Tools or musical instruments. Many musicians have anywhere from $20,000 to $200,000 in instrument costs. Also many of these deductions are depreciated over 7 years. At this time it appears that those taxpayers that haven’t exhausted their deductions through depreciation would not recover the remaining deduction.
    • Promotional materials and advertising to remain relevant in a short term employment contract market.
    • Home Office Expenses
    • Required work clothing or uniforms
    • Required travel, lodging and food in the required course of their work.
  • Medical Expenses - In the current system taxpayers that incur major medical expenses can deduct the amounts that exceed 10% of their adjusted gross income. The new tax plan eliminates this deduction all together in 2019
  • Tax Preparation fees
  • ​​Moving Expenses for Work - The current plan allows a taxpayer to deduct these expenses if there new job is full-time and the new location is more than 50 miles from their previous location. It should be noted that this deduction is still allowed for businesses even if they move their business overseas. 


I haven’t addressed the changes proposed to businesses. The most impacting is lowering the existing corporate tax rate from 35% to 21% in the hopes that the increased corporate profits will create more jobs and higher wages.  Also pass through entities (LLCs and S Corps) will get a 20% deduction from corporate profits before the pass through to the personal returns.

​2018 Federal Tax Law Changes