by Terry Rogers
The federal government recently passed sweeping tax changes which have led to confusion among many citizens. With this year’s tax season in full swing, Julie Wagner, CPA of Marshall Wagner and Associates, explained some of the changes and how they may affect taxpayers.
“There are two significant items that were included in the tax bill that will affect many 2017 returns, most items go into effect in 2018” For 2017 Ms. Wagner said. “Medical deductions will revert back to the 7.5 percent limit instead of the 10%, which means your medical expenses must be higher than 7.5 percent of your income. Bonus depreciation, which is a method of accelerated depreciation used by businesses, increases from 50 percent to 100 percent for any purchases made after September 27, 2017.”
In 2018, Ms. Wagner said that individuals should be aware of items that have been repealed or changed as a part of the new tax bill. Starting in 2018, moving expenses, personal exemptions, state and local income tax, property tax and sales tax deductions have been changed or repealed. Individuals will no longer be able to deduct tax preparation fees nor will they be able to deduct tax software. Roth IRA conversions have also been repealed by the law. These items have essentially been replaced by larger standard deductions.
“Starting in February 2018, individuals should begin seeing changes in their paychecks due to new withholding tables,” Ms. Wagner said. “For someone making $9,525 per year, their taxes will remain the same, zero, for 2018, while an individual making $50,000 per year will see their taxes reduced from $8,154 per year to $6,940. In addition, the marriage penalty has been eliminated for approximately 95 percent of Americans and the Head of Household benefit has been reduced for those above the 22 percent bracket. The standard deduction has been doubled, meaning a much larger deduction for many, and means fewer Americans will need to itemize their deductions. In 2016, 30 percent of taxpayers itemized.”
Another big change for 2018 is related to mortgage interest. In most cases, mortgage interest on loans above $750,000 will no longer be deductible. However, there are exceptions to the rule, Ms. Wagner said. If you plan to refinance a mortgage that is close to $750,000 you should speak to your tax advisor first as there are very complex items to take into consideration, for example, it matters how the proceeds are used. For a mortgage that was obtained before December 31, 2017, the limit is $1 million and for loans obtained after December 31, 2017, the limit is $750,000.
“Equity interest which is money borrowed against a primary residents for non-acquisition purposes,” Ms. Wagner said. “The limit is $100,000 for 2017 but it is eliminated in 2018. There is an exception for student loan interest as well as business interest which is money borrowed for use in a business or rental activity.”
After December 31, 2017, all two percent itemized deductions are eliminated such as Form 2106 employee business expenses, investment advisory fees, tax preparation, and hobby expenses.
“It is important to note that gambling losses are not considered two percent itemized items,” Ms. Wagner explained. “They never have been.”
In 2019, Ms. Wagner said that the alimony deductions and income reporting have been repealed as have commuter fringe benefits. Entertainment deductions have been repealed along with employee business expenses, equity interest on your home, investment expenses and the health insurance penalty. Under the new tax bill, the IRS can no longer ask if you have health insurance, which many say effectively repeals the individual mandate.
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