APCPASOLUTIONS

Tax Reform Update: The Tax Cuts and Jobs Act
The Tax Cuts and Jobs Bill (H.R. 1) is the first significant tax reform effort undertaken by Congress in more than 30 years. The bill was passed by both the House and the Senate and signed into law by President Trump.

Individuals
Tax Brackets. The number of tax brackets remains at seven; however, the tax rates and income covered have changed.

For individuals, the following tax rates apply:
10% up to $9,525
12% up to $38,700
22% up to $82,500
24% up to $157,500
32% up to $200,000
35% up to $500,000
37% over $500,000

For married couples filing jointly, the following rates apply:
10% up to $19,050
12% up to $77,400
22% up to $165,000
24% up to $315,000
32% up to $400,000
35% up to $600,000
37% over $600,000

Standard Deduction. The standard deduction increases to from $6,350 (2017) to $12,000 for individuals, from $9,300 (2017) to $18,000 for heads of household and from $12,700 (2017) to $24,000 for married couples.

Personal Exemption. The deduction for personal exemptions is repealed through 2025.

Child Tax Credit. The Child Tax Credit increases to $2,000 from the current $1,000. An additional $500 credit is provided for each non-child dependent. Also, Social Security numbers for children are required before claiming the enhanced credit.

Alternative Minimum Tax. The AMT remains but exemption amount increase to $70,300 for individuals and $109,400 for married filing jointly, affecting fewer taxpayers.

Capital Gains and Dividends. The maximum tax rate remains at 23.8% (20% plus the 3.8% Medicare tax for taxpayers with income above $200,000 or $250,000 married filing jointly). The 20% capital gains income threshold increases to $425,800 for other individuals ($479,000 for married taxpayers filing jointly).

Estate Tax. The exemption (currently $5.5 million) immediately doubles to $11.2 million in 2018 and remains at this level for the next six years, after which time the estate tax is is eliminated completely (tax year 2026 and beyond).

Education-Related Tax Credits and Deductions. 529 Savings Plans are expanded to allow some funds (up to $10,000 for certain expenses) to be used for K-12 education. Rollovers to Achieving a Better Life Experience (ABLE) Sec. 529A accounts will be allowed as well. The student loan interest deduction remains.

Mortgage Interest Deduction. Remains but with a few changes such as allowing interest deduction for up to $750,000 (currently $1 million) in mortgage principal on new homes. Existing mortgages are grandfathered in. Homes entered into contract before December 15, 2017, and closed on by April 1, 2018, are able to use the prior limit of $1 million.

Home-equity loans. The home-equity loan interest deduction is repealed through 2025.

State and Local Income Tax Deduction. Preserved. Deduction allowed for up to $10,000 a year in state and local income or property taxes.

Note:Taxpayers who prepay 2018 state income taxes, a common tax planning strategy, cannot take the prepaid 2018 amount as a deduction on their 2017 tax returns.
Charitable Contributions. Deductions for charitable donations remain; however, for charitable contributions of cash to public charities the percentage of income limit increases to 60%.

Medical Expense Deductions. The Medical expense deduction (currently 10% of AGI) is temporarily lowered to 7.5% of income for tax years 2017 and 2018.

Miscellaneous Deductions. Many are repealed through 2025 including those relating to tax preparation, alimony payments (after December 31, 2018), and moving expenses with the exception of the moving expense reimbursement for members of the Armed Forces on active duty who move because of a military order.

Adoption Tax Credit. Remains.

Electric Vehicles. The $7,500 tax credit (Sec. 30D) for the purchase of electric vehicles remains.

Individual Healthcare Mandate. Penalty is eliminated for tax years starting in 2018.

The major disaster area designation permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Sept. 4, 2017 and before Jan. 31, 2018, are granted additional time to file through Jan. 31, 2018. This includes taxpayers who had a valid extension to file their 2016 return that was due to run out on Oct. 16, 2017. It also includes the quarterly estimated income tax payments originally due on Sept. 15, 2017 and Jan. 16, 2018, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2017. It also includes tax-exempt organizations that operate on a calendar-year basis and had an automatic extension due to run out on Nov. 15, 2017. In addition, penalties on payroll and excise tax deposits due on or after Sept. 4, 2017, and before Sept. 19, 2017, will be abated as long as the deposits are made by Sept. 19, 2017.

If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty.

7 birthdays that can change your tax return:

1. Age 19: Kiddie Tax

At age 19 (age 24, if you’re a full-time student), the “Kiddie Tax” provision ends. The Kiddie Tax is designed to prohibit a child’s unearned income — typically investments — to be taxed at a their (presumably) lower income tax rate and instead taxes them at the parents’ rate. For 2016, the first $1,050 unearned income is tax-free to the child. The next $1,050 is taxed at the child’s rate and any unearned income over $2,100 is taxed at the parents’ rate.

TAX FILING SEASON OPENS JANUARY 20TH.
IRS will begin accepting returns on Tuesday, Jan. 20, 2015.

Flexible spending accounts (FSA) can help you lower taxes by setting aside pretax dollars to cover medical bills. In the past, you may have been reluctant to contribute to FSAs because you risked losing money you didn’t spend by year-end. You can now contribute up to $2,500 to an FSA in any year, and new rules allow you to carry over as much as $500 from one year to the next.

If you didn’t have minimum essential health care coverage in 2014, you may have to pay either $95 per person ($47.50 for a child under 18) limited to a family maximum of $285 or 1% of your yearly household income that’s above a certain filing threshold. This penalty will rise in 2015.

Following the rollout of the Affordable Care Act (aka Obama Care), some taxpayers may be eligible for a premium tax credit if they buy health care coverage through the government’s Health Insurance Marketplace, fall within certain income limits or meet other qualifications.

Your doctor's files could be bad for your financial health. Hackers, notorious for stealing credit-and debit-card information from stores, and other thieves are increasingly targeting medical records, which can be more valuable because they include such coveted data as Social Security numbers, birth dates, driver's license numbers, and checking-account numbers. Stolen information could be used to open a checking account, files false tax returns or get a consumer loans

For 2014, more than 40 tax provisions are affected by inflation adjustments, including personal exemptions, AMT exemption amounts, and foreign earned income exclusion, as well as most retirement contribution limits.

For 2014, the tax rate structure, which ranges from 10 to 39.6 percent, remains the same as in 2013, but tax-bracket thresholds increase for each filing status. Standard deductions and the personal exemption have also been adjusted upward to reflect inflation.

Child and Dependent Care Credit

The child and dependent care tax credit was permanently extended for taxable years starting in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.

For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

The contents of this post should not be acted upon without specific professional guidance. Please call us if you have questions (305) 892-8565.

Refundable Tax Credit

Effective in 2014, certain taxpayers will be able to use a refundable tax credit to offset the cost of health insurance premiums so that their insurance premium payments do not exceed a specific percentage of their income. Qualified individuals are those with incomes between 133 percent and 400 percent of the federal poverty level. A sliding scale based on family size will be used to determine the amount of the credit. In addition, married taxpayers must file joint returns to qualify.