Tax Reform is Confusing! Here is a Side by Side Comparison Part 1

Tax Reform is confusing to Many People.

Yes, tax reform is confusing; however, in this article we will make it easier to understand. This year has flown by so fast, and tax reform is in full swing. We decided to put together a side-by side comparison of the old and new law. All that is left to close this deal is filing that first tax return to the IRS. Below is an infographic to help you maneuver all the details behind Tax Reform. Below we will break down this very long infographic for you into pieces for an easier understanding. Are you ready?

Tax Cuts and Job Act 2017

With so much confusion regarding tax reform, we put together a side by side comparison of the old and new law. This should help to clear up the major changes to Tax Reform. We will start at the beginning.

Exemptions and Standard Deductions

Tax Reform, Tax Cuts and Jobs Act, Exemptions, Standard DeductionsIn 2017, exemptions were at $4,050. In 2018, under the new act, exemptions were suspended, meaning not deductible until and through 2025. This exemptions change effectively eliminates any tax benefit for a non-resident dependent).

Regarding standard deductions, a single household was $6,350, Head of Household, $9350, and married filing joint was $12,700. Also, additional elderly and bling household members for joint and surviving spouse was  $1,250, and all others $1,550.

Tax Reform, Tax Cuts and Jobs Act, Exemptions, Standard Deductions

Let’s move on and look at the changes in itemized deductions.

Itemized Deductions

Here we remember that there was an allowance in excess of 10% of AGI (adjusted gross income). Under the new tax reform package the medical allowance was kept for 2017 and 2018 with an AGI threshold increase to 10% after 2018. There will be a 7.5% threshold will also apply for AMT purposes for 2017 and 2018.

Tax Changes for Itemized Deductions

Medical Allowance

For 2017, property taxes, and state and local income taxes were deductible. Taxpayers elect to deduct sales tax in lieu of state income tax. However, in 2018 the deduction for state and local taxes, commonly referred to as the SALT deduction, is kept but capped at $10,000. This category includes statement income, real estate and personal property taxes. Foreign property taxes cannot be included.

Home Mortgage InterestHome Morgage Interest, Tax DeductionsHome Mortgage interest formerly allows interest on $1M dollars of acquisition debt on primary and second home. It also allows for interest on $100,000 of home equity debt.

For 2018, home mortgage interest has decreased on $750,000 of acquisition debt on primary and second homes. It grandfathers in interest on up to $1,000,000 of acquisition debt for loans prior to December 15, 2017. This repeals the deduction for home equity debt.

Charitable Contributions

Tax Reform, Charitable ContributionsNext, the Tax Cuts and Jobs act allows charitable contributions generally not to exceed 50% of a taxpayer’s adjusted gross income (AGI). If you had that much to give, we say more power to you because in 2018 the Act continues to allow charitable contributions and increase the 50% of AGI to 60%. Wow!

However, keep in mind, the Act bans charitable deduction for payments made in exchange for college athletic event and seating rights. Sorry season ticket holders, that’s the way that ball bounces. There are also certain substantiation exceptions as well.

Gambling Losses

Tax Reform, Itemized Deductions, Gambling LossesEvery loves a good trip to a casino once in a while. 2017 allows for a deduction not to exceed gambling income. We hope you didn’t lose any money at the slot machines in 2017. In 2018, gambling losses continues to allow for gambling losses not to exceed the gambling income.

Speaking of losses, lets move on to Personal Casualty and Theft Losses.

Personal Casualty and Theft Losses

Itemized Deductions, Personal Casualty, TheftCasualty and theft losses are allowed to the extent each loss exceed $100 and the sum of all losses for the year exceeds 10^ of the taxpayers AGI for 2017.

However, for 2018 personal casualty losses will be suspended until 2025, except for casualty losses attributable to a disaster declared by the President under Sec 401 of the Robert T. Stafford Distater Relief and Emergency Assistance Act. For those victims of hurricanes this year, we are sorry for your loss, but we are glad this is in place.

Tier 2 MiscellaneousTax Reform, Tier 2 Miscellaneous Deductions, Miscellaneous Itemized DeductionsIn 2017, Tier 2 Miscellaneous includs deductions for employee business expenses, tax preparation fees and investment expense, legal fees and others. 2018 excludes all Tier 2 deductions, which are those deductions subject to the 2% of AGI threshold, and itemized deductions through 2025.

Phase-out of Itemized Deductions

Phase out Itemized deductions, phase out tax plan, tax reformDo you think this will be possible? In 2017 itemized deductions have started to phase out for higher income taxpayers. Now, 2018, the phase-out is suspended through 2025.

Tax Reform is confusing, we agree!

We have made a lot of headway in this blog, but we still have a lot more to discuss. Just to name a few areas that we will address in our next blog, Above the Line Deductions, Employee Fringe Benefits, Tax Rates, Shares Sold, and more! While Tax Reform is confusing, if you cannot wait for the following blogs, we have a comprehensive infographic at the end of this blog that you can view. Or, you can call me, Alex Franch, BS EA,  at 781.849.7200 or email us at contactus@worthtax.com. You may also make an appointment at any one of our locations in DedhamWeymouth, and Norwell to develop a tax planning strategy.

Alex Franch, BS EA

Alex is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Alex is an Enrolled Agent and has a decade of tax preparation experience. He is passionate about serving businesses with tax and financial planning

Sources and Resources

Tax Reform is confusing, Tax Reform Chart, Tax Reform Changes

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