Important 2018 Tax Law Changes to Note

As the filing deadline nears for your 2018 federal tax return, it may be helpful to brush up on changes that can affect how much you pay. Be aware that some of the changes cited below are subject to income limits and other qualifications, so check with your tax professional to learn about these and other changes to your 2018 return. Also beware that many individual changes will expire in 2026.

More Tax Breaks

The standard deduction increased significantly to $12,000 for individuals, $24,000 for couples filing jointly and $18,000 for heads of households. Income brackets at which you pay ordinary and capital gains tax also increased significantly, as did the threshold at which taxpayers must pay the Alternative Minimum Tax (AMT). Your children under age 18 may net you a $2,000 child tax credit, if you qualify by income.

The estate tax exemption* more than doubled to $11.18 million for single taxpayers and $22.36 million for couples filing jointly. You can deduct charitable contributions of up to 60% of your adjusted gross income, and inflation indexing boosts the annual gift tax exclusion to $15,000 per taxpayer per recipient. The limit on qualifying income for taking itemized deductions also disappears in 2018.

Fewer Tax Breaks

A combined limit of $10,000 for state and property tax deductions is new to 2018, which taxpayers in highly taxed states will notice. The mortgage cap on the amount of all home loan interest you can deduct is $750,000, down from $1 million. Interest on home equity loans and second mortgages is deductible only for money used for home improvements. Deductions for personal exemptions, moving expenses (service members exempt), unreimbursed job expenses, and casualty and theft losses outside a federal disaster area are also history.

Business: Give and Take

Corporate income taxes decreased, and owners of S corporations and other business entities may see taxes reduced through a special pass-through income tax provision. Section 179 expensing limits doubled to $1 million with a $2.5 million phaseout, and certain equipment and bonuses may be 100% depreciated in the year the expense is incurred.

However, employee transportation benefits are no longer deductible. Neither are entertainment expenses. Larger businesses will also see the end of full interest expensing, which is now limited to any business interest income plus 30% of the business’ adjusted taxable income.

Look Ahead

Alimony payments received according to agreements created or modified after 2018 will no longer be taxable.** In 2019, you may deduct unreimbursed medical expenses exceeding 10% of adjusted gross income, up from 7.5% in 2018. If you don’t have a qualified health insurance plan, you may owe a tax penalty of $695 per adult or 2.5% of household income, whichever is higher, in 2018. The penalty expires in 2019.

Still Time

Income qualification and contribution limits, which are indexed to inflation, increased for a variety of qualified retirement plans and you still have time to set up and contribute to a traditional IRA before your tax filing deadline. You may also contribute to a Roth IRA until that date. While a Roth IRA doesn’t offer tax-deferred contributions, its growth and eventually distributions (when meeting certain terms) are tax-free.***

*https://www.irs.gov/businesses/smallbusinesses-self-employed/whats-new-estateand-gift-tax
**https://www.irs.gov/taxtopics/tc452
***Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 1/2, may be subject to an additional 10% IRS tax penalty.