West Orange Tax & Bookkeeping, Inc
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Tax News & Updates



The recent tax reform law, called The Tax Cut and Jobs Act, passed by Congress and signed into law by the President, will affect virtually every taxpayer. We’ve listed some of the major changes below so you can be prepared. Most of the changes will affect 2018 tax returns which will be filed beginning in January 2019.

Tax brackets and tax rates change for most taxpayers

Most tax filers will pay tax using a new tax bracket and tax rate structure. However, the tax rates remain progressive, meaning tax rates rise as income increases.

The new tax rates are 10%, 12%, 22%, 24%, 32%, 35%, 37%.

Personal and dependent exemptions are eliminated

In 2017, taxpayers claimed a personal exemption for themselves, their spouse (if married filing jointly) and each qualifying child or qualifying relative. Each exemption reduced taxable income by $4,050 in 2017. Under the new tax reform law, personal and dependent exemptions are eliminated.

Child tax credit increased

Tax reform increases the maximum child tax credit from $1,000 to $2,000 per qualifying child. The refundable portion of the credit increases from $1,000 to $1,400. That means taxpayers who don’t owe tax can still claim a credit of up to $1,400. The higher child tax credit will be available for qualifying children under age 17, as under current law.

Also, the child tax credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) of over $200,000 or $400,000 (MFJ). This phase out more than doubles the phase out range under current law.

New credit for non-child dependents

The new tax law allows a new $500 nonrefundable credit for dependents who do not qualify for the child tax credit. Taxpayers can claim this credit for children who are too old for the child tax credit, as well as for non-child dependents.

Standard deduction increases

The standard deduction will increase. In 2018, the standard deduction amounts will be:

 $12,000 (single)

 $18,000 (head of household)

 $24,000 (married filing jointly)

Because of the increase and because of changes to the rules for itemized deductions, many taxpayers who previously itemized deductions will now claim the standard deduction instead. This means they may not have to file Schedule A. However, taxpayers may want to continue to track their expenses so they have the information to make the comparison and choose the tax benefit with the bigger value.

Changes to Itemized Deductions

  • State and local income taxes (SALT) or state and local sales tax, plus real property taxes, may be deducted, but only up to a combined total limit of $10,000 ($5,000 if MFS)

  • Home mortgage interest has several modifications:

    • Interest on a home equity loan is no longer deductible
    • Interest on a new home mortgage is limited to interest paid on a maximum of $750,000 (375,000 if MFS) of a new mortgage taken out after December 14, 2017.
    • Taxpayers with a mortgage taken out before December 15, 2017 can continue to claim home mortgage interest on up to $1 million ($500,000 if MFS) going forward; the $1 million ($500,000 if MFS) limit continues to apply to a refinanced mortgage incurred before December 15, 2017.

  • Charitable contributions: The deduction for charitable contributions is expanded so that taxpayers may contribute up to 60% of their adjusted gross income, rather than up to 50%.

  • Gambling losses remain deductible, but only to the extent of gambling winnings. The definition of losses from wagering transactions is modified.

  • Medical expenses remain deductible. For 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5% of AGI. In 2019, the threshold will increase to 10% of AGI.

  • Miscellaneous itemized deductions subject to the 2-percent floor have been fully eliminated. These include

       o Employee business expenses

       o Tax preparation fees

       o Investment interest expenses

  • Personal casualty and theft losses have also been eliminated except for certain losses in certain federally declared disaster areas. 

Changes to Adjustments to Income (‘above the line deductions’)

  • Tuition and fees: This deduction expired under previous law and was not renewed.

  • Alimony: For orders executed AFTER December 31,2018, alimony will no longer be deducted by the payor or reported as income by the recipient. (Payments under existing orders are grandfathered and may continue to be deducted by the payor and should be reported as income by the recipient.)

  • Moving expenses have been eliminated except for the expenses of active members of the military

  • The Deductions for Educator Expenses, Student Loan Interest, HSA and IRA Contributions as well as Deductions for Self-Employed taxpayers have all remained unchanged.

Health care penalty eliminated

The penalty for failure to obtain health insurance coverage (the "individual mandate") will be eliminated beginning in 2019. Taxpayers who did not have coverage in 2017 or 2018 will continue to owe a penalty for those years, unless they qualify for an exemption.