The conference report was a compromise bill, blending elements of both the previously passed House and Senate versions of the bill. On December 19, the House passed this conference agreement by a vote of 227 to 203. Only 12 Republicans voted against the bill, while no Democrats voted for the bill. The House considered the legislation shortly after noon on December 20, approving it by a vote of 224-201. No Democrats voted in favor of the legislation. On December 22, 2017 President Trump signed the Tax Cuts and Job Act into law.
Let’s start by saying this new Tax Cuts and Jobs Act is not a simplification! Some individuals will benefit; some will not. The same with businesses….some businesses will benefit; some will not. Tax planning (and understanding!) is going to be more than important for 2018 and we (at MJW EA & Co) are doing our best to take classes, speak to professionals in the know, attend webinars, and read about the new tax law. The law is 500 plus pages; the Senate, House, and conference report are more than 1,000 pages. It is an enormous amount to digest. One seminar that we recently attended led by three prominent tax and business attorneys suggested that the complexity and not intended results from the law (somewhat due to the rapid passing by congress) indicate that it is a sure thing we will be seeing technical corrections and modifications in this tax law sooner AND later!
This article only addresses individual tax issues. There are many new complex rules that will impact your business and real estate activities. These will be addressed under separate cover. Stay Tuned!!!
While it’s being sold as a tax cut the increased standard deduction comes more under tax simplification.
But the valuable personal exemptions have been eliminated. Listed below are some highlights that you may find of particular interest:
- Short term capital gains are still taxed as ordinary income.
- Long term capital gains are taxed similarly to the old tax law.
- The 3.8% net investment tax remains the same.
- The child tax credit for qualified children under the age of 17 has been increased. The phase out threshold has dramatically increased.
- The child and dependent care credit remains in place.
- Lifetime Learning and American Opportunity credits and student loan interest deduction remain in place. Tuition and fees deduction has been eliminated.
- The use of funds in a 529 fund has been expanded.
- Mortgage interest deduction can only be taken for mortgages up to $750,000. (for mortgages taken after Dec 15, 2017).
- Interest on home equity debt can no longer be deducted.
- Medical expense deduction threshold has been reduced from 10% of AGI to 7.5% of AGI…. beginning for 2017. After 12/31/2018 returns to 10%.
- The SALT (state and local taxes) deduction is limited to $10,000.
- Many of the miscellaneous expenses have gone away…including investment fees, unreimbursed employee expenses, tax prep fees, casualty losses, legal fees, moving expenses….
- Beginning in 2019 alimony is no longer deductible nor is it income.
- ACA was not repealed. However the individual mandate was repealed. The people not buying health insurance will not be assessed a penalty starting 01/01/2019.
- The AMT is adjusted for inflation and the exemptions have been significantly increased. And the phase out amount has been significantly increased. This should provide great relief for many taxpayers. Because CT ties AMT to federal it is beneficial for individuals impacted by CT AMT.
- Inflation will be calculated differently which means that tax bracket thresholds will raise slower.
- Most of the individual tax breaks are set to expire after 2025.
- The annual gift tax exclusion for 2018 is $15,000.
- The estate tax only applies to estates that are greater than $11.2million. But….heirs continue to receive a stepped up basis for assets inherited.
There are also tax changes for CT worth noting:
- The exemption for Social Security has been increased for 2018.
- Beginning in 2019 there will be a Retirement Income Exemption.
- Teacher Pension exemption for 2018 will remain at 25% and increase to 50% in 2019.
- Property tax credit of $200 is only eligible for taxpayers over 65 years or taxpayers that claim one or more dependents on your federal income tax return.
This is not meant to be an all-inclusive explanation of the new tax code. It is intended to bring to your attention some of the issues that may impact you, give you a basis of knowledge to raise questions pertaining to your particular financial and tax situation, and raise some awareness. We look forward to working with you and strive to provide you with more information as we receive it and as we understand it.
On January 9, 2018 the IRS released Notice 1036, which updates the income-tax withholding tables for 2018 reflecting changes made by the tax reform legislation enacted in December, 2017.
The IRS is working to update its tax forms to reflect Public Law 115-97, Tax Cuts and Jobs Act.
The information in this newsletter is the interpretation of MJW EA & Company, LLC and is provided as a courtesy. It remains subject to IRS interpretation and regulations.