The Tax Cuts and Jobs Act is arguably the most significant change to the Internal Revenue Code in decades, the law reduces tax rates for individuals and corporations and repeals many deductions, thus simplifying filing for many taxpayers. Most of the individual changes will expire at the end of 2025, meaning old tax code rates and deductions will return in 2026 unless Congress passes another law before then. Following are the most notable taking effect after December 31, 2017.

Standard Deduction

  • $24,000   Married Filing Jointly
  • $18,000   Head of Household
  • $12,000   Single
  • $12,000 Married Filing Separately

Personal Exemptions

  • The personal exemption is repealed (meaning it is gone)

Kiddie tax

  • The Kiddie Tax applies to unearned income for children under the age or 19 and college students under the age of 24. Unearned income is income from sources other than wages. Taxable income attributed to net unearned income will be taxed according to the brackets applicable to trust and estates. The rules for tax applicable to earned income are unchanged.

Child Tax Credits

  • The child tax credit will increase to $2,000 per qualifying child and will be refundable up to $1,400 subject to phaseouts. To receive the refundable portion of the child tax credit, a taxpayer must include a social security number for each qualifying child claimed on the tax return.
  • Also included is a temporary $500 nonrefundable credit for other qualifying dependents who are not qualifying children.
  • 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.

Student Loan Interest Deduction

  • For 2018, the maximum amount that you can deduct for interest paid on student loans remains at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 ($135,000 for joint returns) and is completely  phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000 or more ($165,000 or more for joint returns).
  • For graduate students who teach, or the children of university employees, the deferred tuition provided would not be taxable.
  • There are no changes to current law regarding the American Opportunity Credit or the Lifetime Learning Credit.

Discharge of Student Loan Indebtedness

  • The exclusion from income resulting from the discharge of student loan debt is expanded to include discharges resulting from death or disability of the student.

Section 529 Plans

  • Distributions of up to $10,000 per beneficiary can be used for tuition expenses for public, private or religious elementary or secondary school. The limitation applies on a per student basis rather a per account basis.
  • Rollovers from a 529 plan to an ABLE account are allowed without penalty provided the ABLE account is owned by the same designated beneficiary of the 529 plan of a member of the designated beneficiary’s family. Rolled-over amounts count towards the overall annual limitation on contributions to the ABLE account.

 

Over the next few days Bourke Accounting will be blogging about the various tax changes. Give us a call at 502-451-8773 or come in and see us so we can discuss how these changes can help or hurt you…and we can tax plan form there. See you soon