Tax Cuts and Jobs Act 2018
Eliminates the penalty for individuals failing to maintain minimum essential health care coverage.
The standard deduction has increased significantly as originally promised, from $6,500 to $12,00 for single filers; from $9,550 to $18,00 for the head of household filers; and from $13,000 to $24,000 for married taxpayers who file joint returns.
Home Mortgage Interest
The mortgage interest itemized deduction is now capped at mortgage values of $750,000 instead of $1 million. This cap is effective for homes purchased in 2018 and after. For existing mortgages, you can still deduct the mortgage interest for mortgages up to $1 million. Another change is the way you can now only deduct interest on a mortgage secured by your primary home, not a vacation home. The home interest mortgage deduction used to cover both acquisition debt – mortgages were taken out of the purchase or build a home – and equity debt, such as when you refinance and take some cash out of your home’s value to spend on other things, such as your child’s college education. The new tax bill eliminates this deduction for equity debt, so you’ll no longer be able to claim the interest on refinance loans as a tax deduction.
Alimony that you pay used to be a deduction to the payor and taxable income to the payee. Not anymore. Now you not only have to pay your ex, but you have to pay taxes on that portion of your income, too, under the terms of the new tax bill. As for your ex, he/she gets to college that income tax-free.
Personal exemptions are dollar amounts that taxpayers can deduct from their taxable incomes for themselves and for each of their dependents – $4,050 per person as of the 2017 tax year. That deduction has been eliminated for 2018 and after.
Child Tax Credit
As written, the child tax credit will be increased to $2,000 per qualifying child and will be refundable up to $1,400, subject to phaseouts. The bill also includes a temporary $500 nonrefundable credit for the other qualifying dependents (for example, older adults). Phaseouts, which are not indexed for inflation, will begin with adjusted gross income of more than $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.
Currently, 529 plans offer tax-free earnings growth and tax-free withdrawals when the funds are used to pay for college. With the new law, families will be also able to withdraw up to $10,000 per year tax-free for elementary, high school or home-school expenses.
Alternative Minimum Tax
Fewer people will be subject to this tax.
New Tax Brackets
Among the changes in the bill that will affect large U.S. corporations is a dramatic reduction in the corporate tax rate, to 21% from the current 35%. The new legislation also switches the U.S. to territorial system of taxation, from a worldwide one, which affects how foreign subsidiaries and assets are taxed internationally, and allows businesses to immediately expense new capital investments.
(S-Corp, LLC, Sole Proprietor, Partnership)
Business income that passes through to an individual from a pass-through entity and income attributable to a sole proprietorship will be taxed at individual tax rates less a deduction of up to 20% to bring the rate lower. It is so much more complicated than that, but too much to explain here. There are business entity limitations, threshold amounts, and a formual to determine what is included in the 20% and what is not.
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