2018 Tax Changes

Individual Tax Changes for 2018

Parts that may reduce taxes for Individuals:

-Tax brackets will be 10%, 12%, 22%, 24%, 32%, 35%, and 37%. What each bracket will be income-wise is still unclear.
-Almost doubles the Standard Deduction to $24,000 for Married Filing Jointly, $18,000 for Head of Household, and $12,000 for Single taxpayers. This deals with Schedule A of your 1040.
-Reduces allowable medical expenses to fall back to prior percentage, 7.5% of AGI (Adjusted Gross Income). The last few years it has been 10% of AGI.
-Increases the threshold for AMT (Alternative Minimum Tax), but did not eliminate it as was in one of the bills.
-Increase the Child Tax Credit to $2000 and at the same time increases the phase out level so more citizens can take advantage (was $1000 per child under 16). Up to $1400 is refundable.
-Alimony is not taxable to recipient (see below for other ex-spouse).

Parts repealed/removed that may affect Individuals negatively:

-Repeals personal exemptions. For 2017, there is a $4050 per individual family member. There will be no exemption in 2018. Families of four (4) members or larger will be affected. Unknown if reduced tax brackets will compensate for loss.
-Mortgage interest is reduced to $750,000 threshold. It was $1,000,000. Also, Home Equity loans are not deductible.
-Maximum deduction for state and local taxes is reduced to $10,000. It appears that property tax is included in this amount.
-Alimony payments are not deductible starting in 2018 (see above for other ex-spouse).
-Moving Expenses will be disallowed (except military).

Other Individual Tax Implications:

In 2019, not 2018, the Obamacare/ACA mandate will be repealed. Though Obamacare/ACA will remain, this means the penalty for failing to have healthcare will be $0 to individuals and families. All companies and health care providers must still file the 1095 series forms.

Pass-Through Business Changes:

-Allows for deductions of up to 20% of income for qualified pass-through businesses, such as partnerships, LLC's, sole proprietors, and S Corporations. There are a number of complexities and limitations that have yet to be decided.
-Disallows any deduction for settlements and also the cost of settlements related to sexual harassment or abuse, IF there is a non-disclosure agreement. The understanding is that it WILL be allowed if it is part of the public record.

What You and Your Employer Will Do In Early 2018

-Every employer and employee will have to re-evaluate payroll withholdings with the new tax brackets. It is extremely likely that your familiar W-4 will need to have a large revision. The revision will take the IRS awhile to put together, so I would imagine you will not see the forms until March 2018 or after.

Remember, this is a "work in progress", so there will be many "tweaks" to come. No bill is perfect, so overlooked or misunderstood provisions will need to be changed or argued, and maybe even go to court. Some of the items above may be the framework, but the end result may look different. What is true today may not be true tomorrow!