2018

IRS Releases Updated 2018 Withholding Tables

3WRHLOss

The IRS has released updated withholding tables for 2018. The tables reflect major changes made by the Tax Cuts and Jobs Act (TCJA), including an increase in the standard deduction, elimination of personal exemptions, and modification of tax rates and brackets. Employers should begin using the updated tables as soon as possible, but no later than 2/15/18. Employees are not required to do anything at this time. In addition, the IRS is revising the withholding tax calculator on IRS.gov . Taxpayers are encouraged to use the calculator to adjust their withholding once it is released by the end of February. The IRS also is working on revising Form W-4, which will reflect additional changes in the TCJA. The IRS may implement further changes involving withholding in 2019 as it works with the business and payroll community to encourage employees to file new Form W-4 next year.

By |January 25th, 2018|New Tax Laws|0 Comments

Miscellaneous and Overall Limitation on Itemized Deductions Suspended

thumbnail_large

Miscellaneous Itemized Deductions Suspended

Under pre-Act law, taxpayers were allowed to deduct certain miscellaneous itemized deductions to the extent they exceeded, in the aggregate, 2% of the taxpayer’s adjusted gross income.

New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for miscellaneous itemized deductions that are subject to the 2% floor is suspended. (Code Sec. 67(g), as added by Act Sec. 11045)

Overall Limitation (“Pease” Limitation) on Itemized Deductions Suspended

Under pre-Act law, higher-income taxpayers who itemized their deductions were subject to a limitation on these deductions (commonly known as the “Pease limitation”). For taxpayers who exceed the threshold, the otherwise allowable amount of itemized deductions was reduced by 3% of the amount of the taxpayers’ adjusted gross income exceeding the threshold. The total reduction couldn’t be greater than 80% of all itemized deductions, and certain itemized deductions were exempt from the Pease limitation.

New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the “Pease limitation” on itemized deductions is suspended. (Code Sec. 68(f), as amended by Act Sec. 11046)

By |January 12th, 2018|deduction, deductions, New Tax Laws|0 Comments

Medical Expense Deduction Threshold Temporarily Reduced

medical

A deduction is allowed for the expenses paid during the tax year for the medical care of the taxpayer, the taxpayer’s spouse, and the taxpayer’s dependents to the extent the expenses exceed a threshold amount.

To be deductible, the expenses may not be reimbursed by insurance or otherwise. If the medical expenses are reimbursed, then they must be reduced by the reimbursement before the threshold is applied. Under pre-Act law, the threshold was generally 10% of AGI.

RIA observation: For tax years beginning after Dec. 31, 2012, and ending before Jan. 1, 2017, a 7.5%-of-AGI floor for medical expenses applied if a taxpayer or the taxpayer’s spouse had reached age 65 before the close of the tax year.

And, under pre-Act law, for alternative minimum tax (AMT) purposes, the medical expenses deduction rules were modified such that medical expenses were only deductible to the extent they exceeded 10% of AGI.

New law. For tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019, the threshold on medical expense deductions is reduced to 7.5% for all taxpayers. (Code Sec. 213(f), as amended by Act Sec. 11027(a)) In addition, the rule limiting the medical expense deduction for AMT purposes to 10% of […]

Mortgage and Home Equity Indebtedness Interest Deduction Limited

property-taxes

Under pre-Act law, the taxpayer could deduct as an itemized deduction qualified residence interest, which included interest paid on a mortgage secured by a principal residence or a second residence. The underlying mortgage loans could represent acquisition indebtedness of up to $1 million ($500,000 in the case of a married individual filing a separate return), plus home equity indebtedness of up to $100,000.

New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for interest on home equity indebtedness is suspended, and the deduction for mortgage interest is limited to underlying indebtedness of up to $750,000 ($375,000 for married taxpayers filing separately). (Code Sec. 163(h)(3)(F), as amended by Act Sec. 11043(a)) For tax years after Dec. 31, 2025, the prior $1 million/$500,000 limitations are restored, and a taxpayer may treat up to these amounts as acquisition indebtedness regardless of when the indebtedness was incurred. The suspension for home equity indebtedness also ends for tax years beginning after Dec. 31, 2025.

Treatment of indebtedness incurred on or before Dec. 15, 2017. The new lower limit doesn’t apply to any acquisition indebtedness incurred before Dec. 15, 2017.

“Binding contract” exception. A taxpayer who has entered into a binding […]

By |January 11th, 2018|deduction, deductions, New Tax Laws|0 Comments

State and Local Tax Deduction Limited

Under pre-Act law, taxpayers could deduct from their taxable income as an itemized deduction several types of taxes paid at the state and local level, including real and personal property taxes, income taxes, and/or sales taxes.

New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, subject to the exception described below, State, local, and foreign property taxes, and State and local sales taxes, are deductible only when paid or accrued in carrying on a trade or business or an activity described in Code Sec. 212 (generally, for the production of income). State and local income, war profits, and excess profits are not allowable as a deduction.

However, a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of (i) State and local property taxes not paid or accrued in carrying on a trade or business or activity described in Code Sec. 212; and (ii) State and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the tax year. Foreign real property taxes may not be deducted. (Code Sec. 164(b)(6), as amended by Act Sec. […]

By |January 9th, 2018|CA tax, income tax, New Tax Laws, property tax, state income|0 Comments

Capital Gains Provisions Conformed

IRSbuilding_0

The adjusted net capital gain of a non-corporate taxpayer (e.g., an individual) is taxed at maximum rates of 0%, 15%, or 20%.

Under pre-Act law, the 0% capital gain rate applied to adjusted net capital gain that otherwise would be taxed at a regular tax rate below the 25% rate (i.e., at the 10% or 15% ordinary income tax rates); the 15% capital gain rate applied to adjusted net capital gain in excess of the amount taxed at the 0% rate, that otherwise would be taxed at a regular tax rate below the 39.6% (i.e., at the 25%, 28%, 33% or 35% ordinary income tax rates); and the 20% capital gain rate applied to adjusted net capital gain that exceeded the amounts taxed at the 0% and 15% rates.

New law. The Act generally retains present-law maximum rates on net capital gains and qualified dividends. It retains the breakpoints that exist under pre-Act law, but indexes them for inflation using C-CPI-U in tax years after Dec. 31, 2017. (Code Sec. 1(j)(5)(A), as amended by Act Sec. 11001(a)) For 2018, the 15% break point is: $77,200 for joint returns and surviving spouses (half this amount for married taxpayers filing separately), $51,700 for heads of […]

By |January 8th, 2018|capital gains, New Tax Laws|0 Comments

Personal Exemptions Suspended

Under pre-Act law, taxpayers determined their taxable income by subtracting from their adjusted gross income any personal exemption deductions. Personal exemptions generally were allowed for the taxpayer, the taxpayer’s spouse, and any dependents. The amount deductible for each personal exemption was scheduled to be $4,150 for 2018, subject to a phaseout for higher earners.

New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for personal exemptions is effectively suspended by reducing the exemption amount to zero.

By |January 8th, 2018|New Tax Laws, Uncategorized|0 Comments

Standard Deduction Increased

IRS_logo

Taxpayers are allowed to reduce their adjusted gross income (AGI) by the standard deduction or the sum of itemized deductions to determine their taxable income. Under pre-Act law, for 2018, the standard deduction amounts, indexed to inflation, were to be: $6,500 for single individuals and married individuals filing separately, $9,550 for heads of household, and $13,000 for married individuals filing jointly (including surviving spouses).

Additional standard deductions may be claimed by taxpayers who are elderly or blind.

New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the standard deduction is increased to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers, adjusted for inflation in tax years beginning after 2018. No changes are made to the current-law additional standard deduction for the elderly and blind. (Code Sec. 63(c)(7), as added by Act Sec. 11021(a))

By |January 5th, 2018|deduction, New Tax Laws|0 Comments

New Health Saving Account Limits for 2018

3WRHLOss

The Internal Revenue Service released the 2018 inflation-adjusted limitations for health savings accounts.

In Revenue Procedure 2017-37, the IRS said the annual contribution limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,450. For calendar year 2018, the annual limitation on deductions for an individual with family coverage under a high deductible health plan is $6,900. HSAs typically require high deductibles, but they allow people to set aside money from their paychecks on a pre-tax basis for medical expenses.

For calendar year 2018, according to the IRS, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,350 for self-only coverage or $2,700 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,650 for self-only coverage or $13,300 for family coverage.

For 2017, the lower limit on the annual deductible under a high-deductible plan was $1,300 for self-only coverage and $2,600 for family coverage, the same as for 2016. The upper limit for out-of-pocket expenses was $6,550 for self-only coverage and $13,100 for family coverage

If you […]

By |May 24th, 2017|hsa|0 Comments