LEGISLATIVE CHANGES FOR 2018
(*Check back soon for 2019 updates)
The Tax Cuts and Job Act signed into law on December 22, 2017 brought sweeping tax changes for individuals, trusts, estates and business entities. We have outlined below some of the more significant changes. Most of these provisions are temporary and expire after 2025 unless any or all of them are made permanent or amended by Congress.
- Updated tax brackets – There are now 7 brackets in total- 10%, 12%, 22%, 24%, 32%, 35% and 37%.
- The standard deduction is increased to $24,000 for joint filers, $18,000 for heads of household, and $12,000 for all other filers.
- Individuals can no longer claim personal exemptions for themselves or their dependents.
- The child tax credit is increased to $2,000 per child under age 17 with a $500 nonrefundable credit available for dependents other than children.
- Alternative minimum tax exemptions have been increased.
- State, local and property tax deductions are limited to a total of $10,000.
- Mortgage interest deduction is limited to indebtedness of $750,000 per individual and unmarried joint owner, $750,000 for married joint owners, and $375,000 for those joint owners filing married filing separately. This applies for indebtedness incurred after Dec. 15, 2017.
- The deduction for interest on home equity indebtedness is suspended.
- Miscellaneous itemized deductions subject to 2% of adjusted gross income have been suspended.
- Obamacare Individual Mandate for health insurance is repealed as of 1/1/2019.
- After December 31, 2018, alimony payments will be neither deductible by the payor spouse or includible in income of the payee spouse.
- Qualified Business Income Deduction; The deduction for a qualified business will be the greater of 20% of the taxpayer’s combined qualified business income or 20% of taxable income minus net capital gains. The deduction can be limited based on the taxpayer’s taxable income and filing status.
- Kiddie Tax- The unearned income of certain children will now be taxed at rates applicable to trusts and estates which are much higher than the individual rates.
- New 21% flat rate applied to all C corporations beginning in 2018. Entertainment expenses and club membership dues are no longer deductible. Expenses for meals directly associated with business activity continue to be deductible at 50%.
- The Domestic Production Activities Deduction (DPAD) is repealed as of 1/1/2018.
New Depreciation Limits
- Bonus depreciation increases to 100% for qualified property placed in service after 9/27/2017.
- Section 179 deduction –The deduction for qualified property is increased to $1,000,000 and the phase-out threshold is increased to $2,500,000.
Extenders still in limbo for 2018. Congress has not extended these provisions to 2018 as of yet.
- $4,000 above the line deduction for tuition and fees.
- $500 credit for purchases of non-business energy efficient property.
- Qualified principal residence indebtedness exclusion for debt discharge of income.
- Itemized deduction for mortgage insurance premiums.
IRA Contribution: For 2018 and 2019, the maximum that can be contributed to an IRA or Roth IRA is $5,500 and $6,000 respectively. For persons 50 and over, an additional “catch-up” contribution up to $1,000 may be made for both 2018 and 2019.
|Retirement Plan Contribution Limits:||2018||2019|
|Maximum 401(k) and 403(b) employee contribution||$18,500||$19,000|
|Maximum SIMPLE employee contribution||$12,500||$13,000|
“Catch-up” Contribution Limits: Taxpayers who are at least age 50 before the end of the respective year can increase their contribution limits by the following amounts:
|401(k), 403(b), salary reduction SEP plans and 457 plans||$6,000||$6,000|
Roth Rollover Rules: Taxpayers may now convert their regular IRA’s to Roth IRA’s without any income restrictions. However, the ability to recharacterize or unwind a ROTH conversion has been eliminated.
Affordable Care Act
Still applies for 2018-Repealed for years beginning after 12/31/2018
If you or a family member enrolled in health insurance through the Marketplace and advance payments of the premium tax credit were made to your insurance company, you will receive Form 1095-A. A copy of this form is required to prepare your tax return. Please provide this form to us.
Estate & Gift Tax
For 2018 the applicable federal estate and gift tax exemption for individuals was doubled to $11,180,000 and to $22,360,000 for a married couple. For 2019, the estimated exemption is $11,400,000 per individual. The annual gift tax exclusion amount is $15,000 per recipient in 2018 and 2019.
Kiddie Tax: In 2018, the “kiddie tax” applies to children up to age 18, and full-time students age 19-23, whereby a child’s investment income greater than $2,100 is now subject to tax at estate and gift tax rates.
Standard Mileage Rates: The business mileage rate for 2018 is 54.5 cents per mile and has been increased to 58 cents for 2019. Business related costs for parking, tolls, auto loan interest, and auto excise tax may be deducted in addition to the standard mileage rate. The standard mileage rate for medical purposes in 2018 is 18 cents and will be 20 cents for 2019.
Social Security Retirement Earnings Test: For persons who are at least age 62, but under their full retirement age, the maximum income that can be earned while drawing Social Security without losing benefits for 2018 is $17,040 and rises to $17,640 for 2019. For persons who reach full retirement age in 2018 or 2019, the limit of earnings for the period prior to this date are $45,360 and $46,920 respectively. Full retirement age is determined based on the individual’s date of birth and gradually increases from age 65 to age 67.
2018 MASSACHUSETTS TAX HIGHLIGHTS
Massachusetts does not adopt federal personal income tax law changes made to the Internal Revenue Code after January 1, 2005. Therefore, Massachusetts taxation will remain relatively unchanged as a result of the new Federal Tax Law.
Tax Rate: The 2018 tax rate for income (other than short-term capital gains, long-term gains on collectibles and short-term gains on the sale of trade or business property used in a trade or business) remains unchanged at 5.1%.
Senior Circuit Breaker Tax Credit – Real estate tax credit for persons age 65 and older: The maximum credit is increased to $1,100 for 2018. The 2018 limitations on income are $58,000, for single, $73,000 for head of household and $88,000 for married filing jointly. The assessed value of the real estate at January 1, 2018 cannot exceed $778,000 to qualify for this credit. For properties with greater than 1 acre of land, the assessed value and real estate taxes must be pro-rated.
Estate Tax: The Massachusetts filing threshold and exempt amount remains at $1,000,000 with a top rate of 16%. There is no gift tax in Massachusetts.
Prepaid Tuition or College Savings Program Deduction: A deduction is available for contributions to a pre-paid tuition program or a college savings program established by the Commonwealth. The deduction is capped at $1,000 for a single person or head of household and $2,000 for a married couple filing jointly.
New Mass Law Effective 6/30/18
H.4640, known as the “Grand Bargain” was signed by Governor Baker on June 28, 2018 and will ultimately raise the minimum wage to $15 per hour, implement a guaranteed paid family and medical leave program and establishes a permanent sales tax holiday. The law also includes a new payroll tax to help pay for the family leave program that will be paid for by certain businesses and a new tax on short-term rentals.
Please feel free to contact us for additional information on any tax matter or to discuss how the 2018 tax law changes will affect you.