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Monthly Newsletter for November 2018

by in Newsletter on Nov. 2, 2018

401(k) contribution limit increases to $19,000 for 2019; IRA limit increases to $6,000

WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2019.  The IRS today issued technical guidance detailing these items in Notice 2018-83.

Highlights of Changes for 2019

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,500 to $19,000.

The limit on annual contributions to an IRA, which last increased in 2013, is increased from $5,500 to $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2019.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, up from $120,000 to $135,000. For married

couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.

Highlights of Limitations that Remain Unchanged from 2018

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $6,000.

Monthly Newsletter October 2018

by in Newsletter on Sep. 27, 2018

New credit benefits employers who provide paid family and medical leave
Eligible employers who provide paid family and medical leave to their employees during tax years 2018 and 2019 might qualify for a new business tax credit. This new employer credit for family and medical leave is part of tax reform legislation passed in December 2017. Here are some facts about the credit to help employers find out if they might be able to claim it.

To be eligible, an employer must:

  • Have a written policy that meets several requirements, as detailed in Notice 2018-71.
  • Provide:
    • At least two weeks of paid family and medical leave to full-time employees.
    • A prorated amount of paid leave for part-time employees.
    • Provide pay for leave that is at least 50 percent of the wages normally paid to that employee.

The credit applies to these dates:

  • It is available for wages paid in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2020.

The amount of the credit:

  • The credit is generally equal to 12.5 to 25 percent of paid family and medical leave for qualifying employees.

Here’s what kind of leave qualifies:

  • The leave can be for any or all of the reasons specified in the Family and Medical Leave Act:
    • Birth of an employee’s child.
    • Care for the child.
    • Placement of a child with the employee for adoption or foster care.
    • To care for the employee’s spouse, child, or parent who has a serious health condition.
    • A serious health condition that makes the employee unable to perform the functions of his or her position.
    • Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty – or having been notified of an impending call or order to covered active duty – in the Armed Forces.
    • To care for a service member who is the employee’s spouse, child, parent, or next of kin.
  • However, leave paid by a state or local government, or that is required to be provided by state or local law, does not count toward the 50 percent.

Some employers are eligible to claim the credit retroactively to the beginning of their taxable year:

  • Normally employers can only claim the credit based on eligible leave taken after their new or amended policy goes into effect.
  • Read Notice 2018-71 for a description of special rules for when an employer can claim the credit retroactively.

To claim the credit, employers will:

  • Attach Form 8994 to their return. The IRS expects to have this new form available later in 2018.

The Notice sets out special rules and limitations that apply:

  • For example, only paid family and medical leave provided to employees whose prior-year compensation was at or below a certain amount qualify for the credit.
    • Generally, for tax-year 2018, the employee’s 2017 compensation from the employer must be $72,000 or less.

More Information:
Tax Reform Provisions that Affect Businesses

Monthly Newsletter September 2018

by in Newsletter on Sep. 6, 2018

Taxpayers should check out these helpful tax tools

Questions about taxes could come up any time of the year. Whether it’s about tracking a refund or paying a bill, taxpayers can find answers to their questions on IRS.gov. Here are some of the most popular IRS tools:

  • IRS Free File. Taxpayers who filed an extension can use IRS Free File to prepare and e-file a federal tax return. Free File is available at no cost for anyone with income below $66,000. Free File is available through Oct. 15 to file a 2017 tax return. IRS Free File is available through IRS.gov or the IRS2Go mobile app.
  • Direct Deposit. Direct Deposit is the best and fastest way for taxpayers to get their tax refund electronically deposited for free into their financial account. Combining direct deposit with electronic filing is the fastest way for a taxpayer to receive their refund.
  • Where’s My Refund? Taxpayers can use “Where’s My Refund?” at IRS.gov or the IRS2Go mobile app to check the status of a refund within 24 hours after the IRS receives the e-filed return or four weeks after a mailed paper return. The IRS2Go app is free and available on Google Play, the Apple App Store or Amazon App Store.
  • Paying a Tax Bill. IRS Direct Pay is free and taxpayers can pay directly from a checking or savings account. They can choose to receive email notifications about their payments each time they use Direct Pay There are five simple steps to pay in a single online session and it’s also available with the IRS2Go mobile app. Other payment options are available at IRS.gov/payments.
  • Tax Account Information Online. At IRS.gov/account individual taxpayers can view their balance and payment history. They can also pay with their bank account, a debit or credit card or apply for an installment agreement. They can view, print or download tax records, and view their most current tax return information as originally filed. First time users must authenticate their identity through the Secure Access process. Taxpayers who already have a user name and password from Secure Access for their tax account, Get Transcript Online or Identity Protection PIN, may use the same username and password.
  • Online Payment Agreement. Taxpayers who can’t pay their taxes in full can apply for an Online Payment Agreement. Using the Direct Debit payment plan option is a lower-cost, hassle-free way to make monthly payments.
  • Interactive Tax Assistant. Taxpayers can use this tool to find answers to their tax questions. This tax law resource asks a series of questions and provides instant answers on a variety of tax topics, including general filing questions, deductions, credits and income.
  • Tax Map. The IRS Tax Map integrates web links, tax forms, instructions and publications into one search result. Taxpayers can quickly find forms, publications, frequently asked questions and news by topic.

Monthly Newsletter for August 2018

by in Newsletter on Aug. 10, 2018

North Carolina Sales and Use Tax Update

 

The Sales and Use Tax Division has published SD-18-6 Sales and Use Collections on Remote Sales 8-7-2018.  The directive comes after the U.S. Supreme Court’s June decision in South Dakota v. Wayfair, in which the court found that physical presence is not necessary to create a substantial nexus between a remote seller and a taxing state.  Accordingly, North Carolina will enforce an existing law [N.C. Gen. Stat. § 105-164.8(b)] regarding remote sales and require remote sellers to collect and remit the applicable sales and use tax on taxable retail sales sourced to North Carolina.

 

The law will be applied on a prospective basis beginning November 1, 2018.  The NCDOR will enforce the North Carolina statute concerning remote sales with regard to remote sellers having gross sales sourced to the state in excess of $100,000 or having 200 or more separate transactions sourced to the state in the previous or current calendar year.

Monthly Newsletter for July 2018

by in Newsletter on Jul. 13, 2018

Taxpayers who owed tax this year should check their withholding soon

Taxpayers who owed additional tax when they filed their federal return earlier this year should do a “paycheck checkup” as soon as possible. The IRS Withholding Calculator and Publication 505, Tax Withholding and Estimated Tax, can help these taxpayers do a checkup and avoid another possibly bigger tax bill next year.

Following the Tax Cuts and Jobs Act, which was passed last year, there are many changes to the tax law that could affect these taxpayers. Doing a checkup now will help them make sure their current tax withholding is in line with their 2018 tax situation.

Here are some things for these taxpayers to keep in mind:

  • These taxpayers may not have had enough taxes withheld from their pay throughout 2017, causing them to owe in 2018.
  • If they continue to have too little withheld from their paychecks the rest of this year, they could find themselves in the same situation again next year.
  • They might even end up with a larger tax bill when they file their 2018 return next year.
  • It’s important to remember that if a taxpayer underpays their tax too much, penalties and interest can apply.
  • The Withholding Calculator can help taxpayers apply the new law to their situation. The results from the calculator can help them make an informed decision about whether to change their withholding this year.
  • These taxpayers need to adjust their withholding as soon as possible for an even withholding amount throughout the rest of the year.
  • Waiting means there are fewer pay periods to withhold the necessary federal tax, which could have a bigger effect on each paycheck.

Taxpayers with more complex situations might find that using Publication 505 is a better option for figuring their withholding than using the Withholding Calculator. Publication 505 works better for employees who owe self-employment tax, the alternative minimum tax, or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties

Monthly Newsletter for June 2018

by in Newsletter on Jul. 13, 2018

IRS offers summer tips for temporary jobs, marriage, deductions and credits

WASHINGTON – Before starting a summer job, taking a vacation or sending the kids off to camp, the Internal Revenue Service wants taxpayers to know that some summertime activities may qualify for tax credits or deductions. The IRS also recommends that taxpayers check the amount of their withholding taxes now to help avoid surprises next filing season.

Here are some tips from the IRS that may help taxpayers lower taxes and avoid issues with their taxes:

  1. Worker classification matters.  As with other workers, business owners must correctly determine whether summer workers are employees or independent contractors. Independent contractors are not subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes. Workers can avoid higher tax bills and lost benefits if they know their proper status.
  2. Summer workers may be exempt from tax withholding. Workers may not earn enough from summer jobs to owe income tax, but employers usually must withhold Social Security and Medicare taxes from pay. If self-employed or an independent contractor, workers need to pay their own Social Security and Medicare taxes, even if they have no income tax liability. This is important because these taxes count toward coverage under the Social Security system. Normally, employees receive a Form W-2, Wage and Tax Statement, from their employer (even if they don’t work there anymore) to account for the summer’s work by Jan. 31 of the following year. The Form W-2 shows the amount of earnings. It also shows withholdings for state and federal taxes, Social Security, Medicare wages and tips. Employees use the information on this form when they file their annual tax returns.
  3. Check withholding. For those who work a seasonal or part-year job, checking withholding now can help make sure employers withhold the right amount of tax. Taxpayers who work part of the year should check early in the employment period to determine an accurate amount for their withholding. The Withholding Calculator on IRS.gov helps employees determine whether they need to submit a new Form W-4, Employee’s Withholding Allowance Certificate to their employer. It estimates income, credits, adjustments and deductions for most financial situations. Employees can use their results from the calculator to fill out the form and adjust their income tax withholding. They must give their updated forms to their employers to take effect.
  4. Getting married? Newlyweds can help make wedded bliss last longer by doing a few things now to avoid problems at tax time. First, report any name change to the Social Security Administration before filing next year’s tax return. Then, report any address change to the United States Postal Service, any employers and the IRS to ensure receipt of tax-related items. Finally, use the Withholding Calculator at IRS.gov to make sure withholding is correct now that there are two people to consider. This is especially important for families with more than one wage earner, for taxpayers who have more than one job at a time, or for those who have children. For best results, do it as soon as possible.
  5. Clean out, donate, deduct.  If they are in good condition, those long-unused items found during spring or summer cleaning and donated to a qualified charity may qualify for a tax deduction. Taxpayers must itemize deductions to deduct charitable contributions, and be sure to have proof of all donations.
  6. Help with service project, deduct mileage. While there’s no tax deduction for time donated toward a charitable cause, driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2018. Keep good records of mileage.
  7. Get tax credit for summer day camp expenses. Many working parents must arrange for care of their younger children under 13 years of age during the school vacation period. A popular solution — with favorable tax consequences — is a day camp program. Unlike overnight camps, the cost of day camp may count as an expense towards the Child and Dependent Care Credit. See IRS Publication 503, Child and Dependent Care Expenses, for more information.
  8. Refunds require a tax return. Although workers may not have earned enough money from a summer job to require filing a tax return, they may still want to file when tax time comes around. It is essential to file a return to get a refund of any income tax withheld. There is no penalty for filing a late return for those receiving refunds, however, by law, a return must be filed within three years to get its refund. Otherwise, the money becomes property of the U. S. Treasury.

Monthly Newsletter for May 2018

by in Newsletter on May. 7, 2018

Disasters Don’t Plan Ahead, but You Can

Hurricane Preparedness Week is May 6-12. The IRS reminds taxpayers to prepare for hurricanes and other natural disasters now. By taking a few steps before disaster strikes, taxpayers can reduce their stress when it comes time to file claims or rebuild after the catastrophic event.

Here are some things for folks to consider:

  • Update Emergency Plans. Because a disaster can strike any time, taxpayers should review emergency plans annually. Personal and business situations change over time, as do preparedness needs.
  • Create Electronic Copies of Documents. Taxpayers should keep documents – including bank statements, tax returns and insurance policies – in a safe place. Doing so is easier now that many financial institutions provide statements and documents electronically. Even if original documents are available only on paper, people should scan them into an electronic format and store them on DVD, CD or cloud storage.
  • Document Valuables. It’s a good idea for people to photograph or videotape the contents of any home, especially items of higher value. Documenting these items ahead of time will make it easier to claim insurance and tax benefits after a disaster strikes. The IRS has a disaster loss workbook which can help taxpayers compile a room-by-room list of belongings. Photographs can help prove the fair market value of items for insurance and casualty loss claims.

IRS is Ready to Help. In the case of a federally declared disaster, affected taxpayers can call 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. Taxpayers can request copies of previously filed tax returns and attachments, including Forms W-2, by filing Form 4506. They can also order transcripts showing most line items through Get Transcript on IRS.gov by calling 800-908-9946 or by using 4506T-EZ, or 4506-T.

Monthly Newsletter for March 2018

by in Newsletter on Feb. 28, 2018

IRS Can Help Taxpayers Get Form W-2

Most taxpayers got their Form W-2, Wage and Tax Statement, by the end of January. Taxpayers need their W-2s to file an accurate tax returns, as the form shows an employee’s income and taxes withheld for the year.

Taxpayers who haven’t received their W-2 by the end of February should:

  • Contact their Employer. Taxpayers should ask their current or former employer for a copy of their W-2. Be sure the employer has the correct address.
  • Call the IRS. Taxpayers who are unable to get a copy from their employer by the end of February may call the IRS at 1-800-829-1040 for a substitute W-2. The IRS will send a letter to the employer on taxpayers’ behalf. When they call, taxpayers need their:
  • Name, address, Social Security number and phone number.
  • Employer’s name, address and phone number.
  • Employment dates.
  • Estimate of wages and federal income tax withheld in 2017. Use a final pay stub for these amounts.

 

 

Three Popular Tax Benefits Retroactively Renewed for 2017; IRS Ready to Accept Returns Claiming These Benefits; e-file for Fastest Refunds

WASHINGTON – The Internal Revenue Service today said that it is ready to process tax year 2017 returns claiming three popular tax benefits recently renewed retroactively into law.

The Bipartisan Budget Act, enacted on Feb. 9, renewed for tax year 2017 a wide range of individual and business tax benefits that had expired at the end of 2016. The IRS has now reprogrammed its processing systems to handle the three benefits most likely to be claimed on returns filed early in the tax season.

As a result, taxpayers can now file returns claiming:

  • Exclusion from gross income of discharge of qualified principal residence indebtedness (often, foreclosure-related debt forgiveness), claimed on Form 982,
  • Mortgage insurance premiums treated as qualified residence interest, generally claimed by low- and middle-income filers on Schedule A, and
  • Deduction for qualified tuition and related expenses claimed on Form 8917.

The IRS is working closely with tax professionals and the tax-preparation industry to ensure that their available software processes can now accommodate these new provisions. As always, filing electronically and choosing direct deposit is the fastest, most accurate and most convenient way to receive a tax refund. Last year, nearly 87 percent of individual returns were filed electronically and nearly 80 percent of refunds were direct deposited.

Monthly Newsletter for February 2018

by in Newsletter on Feb. 1, 2018

Updated 2018 Withholding Tables Now Available; Taxpayers Could See Paycheck Changes by February

 

WASHINGTON — The Internal Revenue Service today released Notice 1036, which updates the income-tax withholding tables for 2018 reflecting changes made by the tax reform legislation enacted last month. This is the first in a series of steps that IRS will take to help improve the accuracy of withholding following major changes made by the new tax law.

The updated withholding information, posted today on IRS.gov, shows the new rates for employers to use during 2018. Employers should begin using the 2018 withholding tables as soon as possible, but not later than Feb. 15, 2018. They should continue to use the 2017 withholding tables until implementing the 2018 withholding tables.

Many employees will begin to see increases in their paychecks to reflect the new law in February. The time it will take for employees to see the changes in their paychecks will vary depending on how quickly the new tables are implemented by their employers and how often they are paid — generally weekly, biweekly or monthly.

The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. This will minimize burden on taxpayers and employers. Employees do not have to do anything at this time.

“The IRS appreciates the help from the payroll community working with us on these important changes,” said Acting IRS Commissioner David Kautter. “Payroll withholding can be complicated, and the needs of taxpayers vary based on their personal financial situation. In the weeks ahead, the IRS will be providing more information to help people understand and review these changes.”

The new law makes a number of changes for 2018 that affect individual taxpayers. The new tables reflect the increase in the standard deduction, repeal of personal exemptions and changes in tax rates and brackets.

For people with simpler tax situations, the new tables are designed to produce the correct amount of tax withholding. The revisions are also aimed at avoiding over- and under-withholding of tax as much as possible.
To help people determine their withholding, the IRS is revising the withholding tax calculator on IRS.gov. The IRS anticipates this calculator should be available by the end of February. Taxpayers are encouraged to use the calculator to adjust their withholding once it is released.

The IRS is also working on revising the Form W-4. Form W-4 and the revised calculator will reflect additional changes in the new law, such as changes in available itemized deductions, increases in the child tax credit, the new dependent credit and repeal of dependent exemptions.

The calculator and new Form W-4 can be used by employees who wish to update their withholding in response to the new law or changes in their personal circumstances in 2018, and by workers starting a new job. Until a new Form W-4 is issued, employees and employers should continue to use the 2017 Form W-4.

In addition, the IRS will help educate taxpayers about the new withholding guidelines and the calculator. The effort will be designed to help workers ensure that they are not having too much or too little withholding taken out of their pay.

For 2019, the IRS anticipates making further changes involving withholding. The IRS will work with the business and payroll community to encourage workers to file new Forms W-4 next year and share information on changes in the new tax law that impact withholding.

Monthly Newsletter for January 2018

by in Newsletter on Dec. 28, 2017

What the tax reform bill means for individuals

 

December 20, 2017

 

H.R. 1, known as the Tax Cuts and Jobs Act, which both houses of Congress passed on Dec. 20, contains a large number of provisions that affect individual taxpayers. However, to keep the cost of the bill within Senate budget rules, all of the changes affecting individuals expire after 2025. At that time, if no future Congress acts to extend H.R. 1’s provision, the individual tax provisions would sunset, and the tax law would revert to its current state.

Here is a look at many of the provisions in the bill affecting individuals.

Tax rates

For tax years 2018 through 2025, the following rates apply to individual taxpayers:

Single taxpayers

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%


Heads of households

Taxable income over But not over Is taxed at
$0 $13,600 10%
$13,600 $51,800 12%
$51,800 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $500,000 35%
$500,000   37%


Married taxpayers filing joint returns and surviving spouses

Taxable income over But not over Is taxed at
$0 $19,050 10%
$19,050 $77,400 12%
$77,400 $165,000 22%
$165,000 $315,000 24%
$315,000 $400,000 32%
$400,000 $600,000 35%
$600,000   37%


Married taxpayers filing separately

Taxable income over But not over Is taxed at
$0 $9,525 10%
$9,525 $38,700 12%
$38,700 $82,500 22%
$82,500 $157,500 24%
$157,500 $200,000 32%
$200,000 $300,000 35%
$300,000   37%


Estates and trusts

Taxable income over But not over Is taxed at
$0 $2,550 10%
$2,550 $9,150 24%
$9,150 $12,500 35%
$12,500   37%

Special brackets will apply for certain children with unearned income.

The system for taxing capital gains and qualified dividends did not change under the act, except that the income levels at which the 15% and 20% rates apply were altered (and will be adjusted for inflation after 2018). For 2018, the 15% rate will start at $77,200 for married taxpayers filing jointly, $51,700 for heads of household, and $38,600 for other individuals. The 20% rate will start at $479,000 for married taxpayers filing jointly, $452,400 for heads of household, and $425,800 for other individuals.

Standard deduction: The act increased the standard deduction through 2025 for individual taxpayers to $24,000 for married taxpayers filing jointly, $18,000 for heads of household, and $12,000 for all other individuals. The additional standard deduction for elderly and blind taxpayers was not changed by the act.

Personal exemptions: The act repealed all personal exemptions through 2025. The withholding rules will be modified to reflect the fact that individuals can no longer claim personal exemptions.

Passthrough income deduction

For tax years after 2017 and before 2026, individuals will be allowed to deduct 20% of “qualified business income” from a partnership, S corporation, or sole proprietorship, as well as 20% of qualified real estate investment trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. (Special rules would apply to specified agricultural or horticultural cooperatives.)

A limitation on the deduction is phased in based on W-2 wages above a threshold amount of taxable income. The deduction is disallowed for specified service trades or businesses with income above a threshold.

For these purposes, “qualified business income” means the net amount of qualified items of income, gain, deduction, and loss with respect to the qualified trade or business of the taxpayer. These items must be effectively connected with the conduct of a trade or business within the United States. They do not include specified investment-related income, deductions, or losses.

“Qualified business income” does not include an S corporation shareholder’s reasonable compensation, guaranteed payments, or — to the extent provided in regulations — payments to a partner who is acting in a capacity other than his or her capacity as a partner.

“Specified service trades or businesses” include any trade or business in the fields of accounting, health, law, consulting, athletics, financial services, brokerage services, or any business where the principal asset of the business is the reputation or skill of one or more of its employees.

The exclusion from the definition of a qualified business for specified service trades or businesses phases out for a taxpayer with taxable income in excess of $157,500, or $315,000 in the case of a joint return.

For each qualified trade or business, the taxpayer is allowed to deduct 20% of the qualified business income for that trade or business. Generally, the deduction is limited to 50% of the W-2 wages paid with respect to the business. Alternatively, capital-intensive businesses may get a higher benefit under a rule that takes into consideration 25% of wages paid plus a portion of the business’s basis in its tangible assets. However, if the taxpayer’s income is below the threshold amount, the deductible amount for each qualified trade or business is equal to 20% of the qualified business income for each respective trade or business.

Child tax credit

The act increased the amount of the child tax credit to $2,000 per qualifying child. The maximum refundable amount of the credit is $1,400. The act also created a new nonrefundable $500 credit for qualifying dependents who are not qualifying children. The threshold at which the credit begins to phase out was increased to $400,000 for married taxpayers filing a joint return and $200,000 for other taxpayers.

Other credits for individuals

The House version of the bill would have repealed several credits that are retained in the final version of the act. These include:

  • The Sec. 22 credit for the elderly and permanently disabled;
  • The Sec. 30D credit for plug-in electric drive motor vehicles; and
  • The Sec. 25 credit for interest on certain home mortgages.

The House bill’s proposed modifications to the American opportunity tax credit and lifetime learning credit also did not make it into the final act.

Education provisions

The act modifies Sec. 529 plans to allow them to distribute no more than $10,000 in expenses for tuition incurred during the tax year at an elementary or secondary school. This limitation applies on a per-student basis, rather than on a per-account basis.

The act modified the exclusion of student loan discharges from gross income by including within the exclusion certain discharges on account of death or disability.

The House bill’s provisions repealing the student loan interest deduction and the deduction for qualified tuition and related expenses were not retained in the final act.

The House bill’s proposed repeal of the exclusion for interest on Series EE savings bonds used for qualified higher education expenses and repeal of the exclusion for educational assistance programs also did not appear in the final act.

Itemized deductions

The act repealed the overall limitation on itemized deductions, through 2025.

Mortgage interest: The home mortgage interest deduction was modified to reduce the limit on acquisition indebtedness to $750,000 (from the prior-law limit of $1 million).

A taxpayer who entered into a binding written contract before Dec. 15, 2017, to close on the purchase of a principal residence before Jan. 1, 2018, and who purchases that residence before April 1, 2018, will be considered to have incurred acquisition indebtedness prior to Dec. 15, 2017, under this provision, meaning that he or she will be allowed the prior-law $1 million limit.

Home-equity loans: The home-equity loan interest deduction was repealed through 2025.

State and local taxes: Under the act, individuals are allowed to deduct up to $10,000 ($5,000 for married taxpayers filing separately) in state and local income or property taxes.

The conference report on the bill specifies that taxpayers cannot take a deduction in 2017 for prepaid 2018 state income taxes.

Casualty losses: Under the act, taxpayers can take a deduction for casualty losses only if the loss is attributable to a presidentially declared disaster.

Gambling losses: The act clarified that the term “losses from wagering transactions” in Sec. 165(d) includes any otherwise allowable deduction incurred in carrying on a wagering transaction. This is intended, according to the conference report, to clarify that the limitation of losses from wagering transactions applies not only to the actual costs of wagers, but also to other expenses the taxpayer incurred  in connection with his or her gambling activity.

Charitable contributions: The act increased the income-based percentage limit for charitable contributions of cash to public charities to 60%. It also denies a charitable deduction for payments made for college athletic event seating rights. Finally, it repealed the statutory provision that provides an exception to the contemporaneous written acknowledgment requirement for certain contributions that are reported on the donee organization’s return — a prior-law provision that had never been put in effect because regulations were never issued.

Miscellaneous itemized deductions: All miscellaneous itemized deductions subject to the 2% floor under current law are repealed through 2025 by the act.

Medical expenses: The act reduced the threshold for deduction of medical expenses to 7.5% of adjusted gross income for 2017 and 2018.

Other provisions for individuals

Alimony: For any divorce or separation agreement executed after Dec. 31, 2018, the act provides that alimony and separate maintenance payments are not deductible by the payer spouse. It repealed the provisions that provided that those payments were includible in income by the payee spouse.

Moving expenses: The moving expense deduction is repealed through 2025, except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station.

Archer MSAs: The House bill would have eliminated the deduction for contributions to Archer medical savings accounts (MSAs); the final act did not include this provision.

Educator’s classroom expenses: The final act did not change the allowance of an above-the-line $250 deduction for educators’ expenses incurred for professional development or to purchase classroom materials.

Exclusion for bicycle commuting reimbursements: The act repealed through 2025 the exclusion from gross income or wages of qualified bicycle commuting expenses.

Sale of a principal residence: The act did not change the current rules regarding exclusion of gain from the sale of a principal residence.

Moving expense reimbursements: The act repealed through 2025 the exclusion from gross income and wages for qualified moving expense reimbursements, except in the case of a member of the armed forces on active duty who moves pursuant to a military order.

IRA recharacterizations: The act excludes conversion contributions to Roth IRAs from the rule that allows IRA contributions to one type of IRA to be recharacterized as a contribution to the other type of IRA. This is designed to prevent taxpayers from using recharacterization to unwind a Roth conversion.

Estate, gift, and generation-skipping transfer taxes

The act doubles the estate and gift tax exemption for estates of decedents dying and gifts made after Dec. 31, 2017, and before Jan. 1, 2026. The basic exclusion amount provided in Sec. 2010(c)(3) increased from $5 million to $10 million and will be indexed for inflation occurring after 2011.

Individual AMT

While the House version of the bill would have repealed the alternative minimum tax (AMT) for individuals, the final act kept the tax, but increased the exemption.

For tax years beginning after Dec. 31, 2017, and beginning before Jan. 1, 2026, the AMT exemption amount increases to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return) and $70,300 for all other taxpayers (other than estates and trusts). The phaseout thresholds are increased to $1 million for married taxpayers filing a joint return and $500,000 for all other taxpayers (other than estates and trusts). The exemption and threshold amounts will be indexed for inflation.

Individual mandate

The act reduces to zero the amount of the penalty under Sec. 5000A, imposed on taxpayers who do not obtain health insurance that provides at least minimum essential coverage, effective after 2018.