2018 Tax Law Changes

Are you wondering how the new IRS tax law changes will affect you? Be prepared with need-to-know answers to all your tax reform questions. We’ve been keeping track of all the tax law changes so you don’t have to.

Domestic Production Activities Deduction

This deduction was repealed, making it no longer available after December 31, 2017, except for certain limited situations.

Qualified Business Income Deduction

This new deduction allows some taxpayers with business income to deduct up to 20% of qualified business income (QBI), in addition to itemized deductions (or the standard deduction), If you have qualified real estate investment trust dividends and publicly traded partnership income, you may be able to deduct 20% of that as well. This deduction is reported on Form 1040, line 9.

Education Savings Bond Income Limits

You may be able to exclude all or part of the interest from qualifying Series EE or Series I bonds if you use the income for qualified educational expenses. You cannot take this benefit if your modified adjusted gross income is $94,550 or more ($149,300 if you file jointly, or if you file as Qualifying Widow(er) with Dependent Child).

American Opportunity Tax Credit

The American Opportunity Tax Credit income limits remain unchanged for 2018. You can claim this benefit even if the student doesn’t receive Form 1098-T from the education institution. Make sure to have your TIN ready by the time you file – you can’t claim the credit without it.

Lifetime Learning Credit

The income limits increase this year to $67,000 ($134,000 if married filing jointly).

Social Security Wage Ceiling

The maximum amount of earned income on which you pay Social Security tax is now $128,400. When you reach that amount with one employer, they should stop withholding Social Security tax from your pay until the following year. If you work for more than one employer, and your total earnings are more than $128,400, you should receive a credit for any overpayment of Social Security taxes.

Foreign Earned Income Exclusion

If you qualify, you can exclude up to $103,900 of your foreign earned income from your taxable income for 2018. If you and your spouse both work in separate foreign countries and meet the qualifications, you may each be able to exclude up to $103,900.

New 1040 Form

IRS Forms 1040, 1040A, 1040EZ have been combined into one simplified individual tax form. The new design consists of a two-sided, half-page form. Some sections from the previous design were moved to supporting schedules.

Form 1040, page one:

• Basic Information (name, address, SSN, etc.)
• Standard Deduction
• Dependents
• Signature(s)

Form 1040, page two:

• Wages, salaries, tips, etc.
• Tax-exempt interest
• Qualified dividends
• IRAs, pensions, and annuities
• Social security benefits
• Additional income and adjustments to income
• Adjusted gross income
• Standard Deduction
• Qualified business income deduction
• Taxable income
• Tax
• Nonrefundable credits
• Other Taxes
• Total Tax
• Federal withholding
• Refundable credits
• Refund/tax payment
• Amount owed

Schedule 1 – Additional Income and Adjustments to Income

• State and local income taxes
• Alimony received
• Business income
• Capital gain or (loss)
• Other gains or losses
• Rental, royalties, and pass-through income
• Farm income
• Unemployment compensation
• Other income

Schedule 2 – Tax

• Child’s unearned income
• Lump-sum distributions
• Other taxes
• Alternative minimum tax
• Excess advance premium tax credit

Schedule 3 – Nonrefundable Credits

• Foreign tax credit
• Child and dependent care credit
• Education credits
• Retirement savings
• Child tax credit
• Residential energy credit
• General business credit

Schedule 4 – Other Taxes

• Self-employment tax
• Social security and Medicare tax on tip income
• Uncollected social security and Medicare tax
• Additional tax on IRAs
• Household employment taxes
• First-time homebuyer credit
• Individual responsibility (health care)
• Additional Medicare tax, net investment income tax
• Section 965 net tax

Schedule 5 – Other Payments and Refundable Credits

• Estimated tax payments
• Net premium tax credit
• Extension
• Social security and tier 1 tax withheld
• Fuel tax credit
• Health coverage tax credit

Schedule 6 – Foreign Address and Third Party Designee

Itemized Deductions

The Tax Cuts and Jobs Act (commonly known as the tax reform bill) suspended or changed many miscellaneous deductions you may have taken in the past.

New limits apply to:

• Casualty and theft losses
• State and local taxes deductions
• Home mortgage interest deduction

Other deductions were eliminated:

• Employee business expenses
• Tax preparation fees
• Investment expenses
• Some educational expenses
• Job search expenses
• Hobby losses
• Safe deposit box fees
• Investment expenses from pass-through entities

Because of these changes, Form Schedule A has changed from 30 lines in 2017 to 18 for the new tax year.

Standard Deduction

The standard amount you can deduct from income if you don’t itemize your deductions is $12,000 ($24,000 for married couples filing jointly, or $18,000 if you file as head of household).

Personal Exemptions

The personal exemption deductions have been eliminated for tax year 2018.

Alternative Minimum Tax(AMT)

The Alternative Minimum Tax (AMT) exemption amount for individuals rises in 2018 to $70,300 and begins to phase out at $500,000. For married couples filing jointly, the exemption rises to ($109,400, with phase-out beginning at $1,000,000 for married couples filing jointly).

Earned Income Credit

If you have no children, your maximum Earned Income Credit for 2018 is $519. With two children, the maximum amount is $5,716, and with one child, it is $3,461. If you have three or more qualifying children, the maximum Credit you can receive for 2018 is $6,431 (up from $6,318 in 2017).

Adoption Credit

You may qualify for a credit equal to up to $13,810 of your adoption expenses. If your employer provides adoption benefits, you may also be able to exclude up to the same amount from your income. Both a credit and exclusion may be claimed for the same adoption, but not for the same expense. The credit is permanent and indexed to inflation.

Child Tax Credit

The child tax credit is now $2,000 per qualifying child. You can also make more and still qualify for the credit, with the phase-out beginning at $200,000 ($400,000 if married filing jointly). Qualifying children must have a Social Security Number (SSN). If a child has an ITIN but no SSN you may be able to claim the Other Dependent Credit instead.

Credits for Other Dependents

This new credit allows you to claim a credit of up to $500 for a dependent who does not qualify for the child tax credit. A qualifying relative may be considered a dependent for this credit.

Individual Shared Responsibility Provision

In 2018, each individual taxpayer must still carry the required “minimum essential coverage” each month, qualify for an exemption, or pay mandatory taxes. The minimum amount of insurance coverage you must carry is calculated per family member and then added together. The fee for not having health insurance is the higher between 2.5% of household income or $695 per adult ($347.50 per child under 18, with a maximum of $2085 per family). This mandate is scheduled to expire December 31, 2018.

Limitation on Itemized Deductions

The Pease provision that outlined limits on itemized deductions for high-income households has been eliminated for 2018.

Personal Exemptions Phase-Out(PEP)

Since the Tax Cuts and Jobs Act removed personal exemptions, the phase-outs are gone as well.

Death Tax Rate

For persons who died in 2018, the federal estate tax rate remains at 40%. This tax only applies to estates larger than $11,180,000 – up considerably from $5,490,000 in 2017.

Disaster Tax Relief

If you were one of the many Americans affected by hurricanes or wildfires in 2018, the IRS may be able to help. Visit the IRS Guidance for Those Affected by Disasters page to see if you qualify.

Moving Expenses

If you move in 2018, you are no longer able to deduct moving expenses unless you are an active military member and were ordered to move.

Mortgage Interest Deduction

You can still deduct mortgage interest in many cases, but new law changes impose stricter limitations. The new cap for qualified residence loans is $750,000 ($375,000 if married filing separate). This total can only include funds used to buy, build, or substantially improve a qualifying residence.

Standard Mileage

The standard mileage rate for the use of your car or other vehicle jumps to 54.5 cents per mile for business (up from 53.5 cents for 2017) and up to 18 cents per mile driven for medical or moving purposes (up from 17 cents for 2017). The rate for charitable travel remained the same at 14 cents per mile.

Contribution Limits for Flexible Spending Accounts

The most you can contribute to one of these plans increases to $2,650. Your spouse can also contribute $2,650 if he or she meets the qualifications. For certain FSAs, up to $500 can still be carried over to the next year.

Medical Savings Accounts

(1) Self-only coverage. The term “high deductible health plan” as defined in Sec. 220(c)(2)(A) means, for self-only coverage, a health plan that has an annual deductible that is not less than $1,350 and not more than $3,450, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $6,650.

(2) Family coverage. The term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $2,700 and not more than $6,900, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $13,300.