The Tax Cuts and Jobs Act (TCJA), which was signed into law in December 2017, included significant changes to the tax code. These changes will mean that most taxpayers will have a lower tax bill at the end of the year – but it’s not all good news for everyone. For certain people, tax will go up or remain unchanged.
Are you withholding less than needed?
Anyone who receives a W-2 at the end of each year should check their pay stubs to be sure their withholding is not substantially less than it was compared to the same time in the prior year. The IRS has been monitoring withholding and has issued weekly warnings that many taxpayers are withholding less than needed to meet their income tax obligation. They are currently stating that the employee is responsible for ensuring proper withholding and they will not abate penalties that may occur because of under-withholding.
No more exemptions!
For people without dependent children, this is no big deal because the increased standard deduction will compensate for the change. Those with children under 17, will notice the Child Tax Credit is increasing as well. The year your children turn 17, however, the Child Tax Credit is eliminated – leaving you with higher taxes due. A $500 dependent credit will help some taxpayers, but for middle-income families this may cause some heartache.
There are multiple changes to itemizing deductions (sometimes called long-form) on Schedule A. The near doubling of the standard deduction paired with the elimination of exemptions means that even if you can itemize, it won’t be worth as much as it once was. The following items further squeeze the benefits of itemizing:
State and Local Tax deduction limitation
This has spent a lot of time in the news, and it can be a big deal for many people. This deduction includes income tax or sales tax, personal real estate tax, and property tax. Not all states and localities collect all three, but you don’t have to be a high-income person or live in a high-tax state for this limit to hurt you. A large family will pay more tax on a large home no matter where it is, and states across the country are scrambling to raise money as they receive less from the federal government. This issue will continue to grow, and more people will reach this limit as time moves on.
Employee expense deduction
Elimination of the employee expense deduction will hit certain sectors much harder than others. Over-the-road truck drivers, construction workers, and salesmen who frequently travel will feel this the most. If you’ve itemized employee expenses in the past on Form 2106, do not let hope into your heart upon seeing the Form still around in 2018. It exists now only for highly specialized uses and Army reservists.
Limits on mortgage indebtedness
Limits on mortgage indebtedness interest were lowered to $750,000 and equity interest is no longer deductible unless the proceeds are used to build or improve the home and all loans are under the limit. This means your mortgage interest expense deduction may be limited if your mortgage loan is larger than $750,000. This applies to new mortgages only.
Personal Casualties no longer allowed (unless the loss is due to Presidentially Declared Disasters).
Affordable Care Act
ACA (Obamacare) penalty for not having health insurance remains in effect through 2018. All of the exceptions still apply and are worth looking into. Individual mandate remains law after that without penalty for non-compliance. All other sections of ACA remain intact.
Kiddie Tax follows trust brackets now – children with unearned income (ex: investment income) will likely pay more tax.
The Tax department at AgriSolutions can help you determine how the new law will impact you. Contact us to set up a meeting.
Disclaimer – Descriptions provided in this article are presented as generalities. There are many factors not listed above which may impact your return. This article should not be considered legal or tax advice. For advice on a specific transaction, please contact the AgriSolutions Tax department at firstname.lastname@example.org .