Summit Financial Group 

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Address:

9340 Fuerte Dr Ste 207
La Mesa, CA 91941-4164

Phone:

619.698.9760, 888.565.9760

Fax/Other:

619.698.9767

New Tax Laws

As you can see, the new Tax Law is still quite complex, and for most of our clients, it will still require more than a “post card” to complete!  We are here to help you.

 

HIGHLIGHTS OF THE TAX CUTS AND JOBS ACT:

 

New Income Tax Rates & Brackets

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, seven tax rates apply for individuals: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These new rates should provide for reduced overall tax liability for most individuals.

Standard Deduction Increased for the Next Eight Years

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the standard deduction has nearly doubled to $24,000 for married individuals filing a joint return, $18,000 for head-of-household filers, and $12,000 for all other taxpayers. These amounts are designed to provide additional tax savings for individuals itemizing their deductions.

Personal Exemptions Suspended for the Next Eight Years

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction of $4150 for each individual on the tax return is effectively suspended because the statutory exemption amount is reduced to zero.

Kiddie Tax Modified

For tax years beginning after Dec. 31, 2017, the tax on certain children with unearned income (the “kiddie tax”) is imposed as follows: the child's taxable income attributable to earned income is taxed under the rates for single individuals, and the child's taxable income attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. This rule applies to the child's ordinary income and his or her income taxed at preferential rates.

Capital Gains Provisions Conformed

The Act generally retains present-law 0%, 15%, and 20% tax rates on net capital gains and qualified dividends. It also retains the pre-Act law breakpoints at which the 15% and 20% tax rates begin to apply, but indexes them for inflation using C-CPI-U in tax years after Dec. 31, 2017. For 2018, the 15% breakpoint is $77,200 for joint returns and surviving spouses, $51,700 for heads of household, $38,600 for single taxpayers, $38,600 for married taxpayers filing separately, and $2,600 for trusts and estates. The 20% breakpoint is $479,000 for joint returns and surviving spouses, $452,400 for heads of household, $425,800 for single files, $239,500 for married taxpayers filing separately, and $12,700 for estates and trusts.

Deduction for Personal Casualty & Theft Losses Suspended for the Next Eight Years

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the personal casualty and theft loss deduction is suspended, except for personal casualty losses incurred in a federally-declared disaster.

Child Tax Credit Increased; Partial Credit for Non-Child Dependents

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the child tax credit is increased to $2,000 from the previous credit of $1,000. This credit was available in previous years for all dependent children under the age of 17. However, many taxpayers found that the credit phased out as their income reached $110,000. The new law allows for $2,000 credit for each dependent child under the age of 18, and doesn’t begin phasing out the credit until a married couples income reaches $400,000 ($200,000 for a single taxpayer). No credit will be allowed to a taxpayer with respect to any qualifying child unless the taxpayer provides the child's SSN. In addition, a $500 nonrefundable credit is provided for certain non-child dependents.

State and Local Tax (SALT) Deduction Limited

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, State and local income taxes, real estate taxes (personal residence and investment properties), DMV fees, and Sales Tax deduction are limited to a total deduction of $10,000 for individuals itemizing their deductions. This limitation of property taxes does not apply to rental properties or business properties.

 Mortgage Interest Deduction Limited

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for home mortgage interest (for loans taken out after December 31, 2017) is limited to interest on a maximum loan of $750,000 ($375,000 for married taxpayers filing separately). These loans must relate to “acquisition indebtedness” of the residence.

In addition, the deduction for interest on home equity (HELOC loans) indebtedness is suspended, for all home equity loans, regardless of when the loan originated. Nevertheless, there are a few exceptions to this rule, you should review the details of this regulation with your tax professional.

If you are considering the re-finance of existing loan, please consult with your tax professional as there are a number of new issues to consider in a refinance.

Individual Charitable Contribution Deduction Limitation Increased

For contributions made in tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the regulations have changed to allow as much as 60% of your total income to be deductible for cash donations given to public charities and certain private foundations. The previous law limited the deduction to 50% of an individual’s total income.

Medical Expense Deduction Threshold Temporarily Reduced

For tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019, the threshold on medical expense deductions is reduced to 7.5% of adjusted gross income (AGI) for all taxpayers. In addition, the 10%-of-AGI threshold that applied under pre-Act law for alternative minimum tax (AMT) purposes doesn't apply to tax years beginning after Dec. 31, 2016 and ending before Jan. 1, 2019.

Miscellaneous Itemized Deductions Suspended

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for miscellaneous itemized deductions that are subject to the 2%-of-AGI floor is suspended.

Alimony Deduction by Payer/Inclusion by Payee Suspended

For any divorce or separation agreement executed after Dec. 31, 2018 (or executed on or before Dec. 31, 2018 but modified later if the modification expressly provides that the Act rules apply), alimony and separate maintenance payments are not deductible by the “paying” spouse and are not included in the income of the “recipient” spouse. While this does not affect any existing alimony orders, this is a major change in the tax law!!!!  You should take special effort to consult with your tax and legal professionals if you may be affected by this law.

Moving Expenses Deduction Suspended

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the deduction for moving expenses related to an employment change is suspended, 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.

Repeal of ACA Individual Mandate

Under pre-Act law, the Affordable Care Act (also called the ACA or Obamacare) required individuals who were not covered by a health plan that provided at least minimum essential coverage to pay a “shared responsibility payment” (also referred to as a penalty) with their federal tax return, for any month the individual did not have minimum essential coverage. This provision is commonly known as the “Individual Mandate.”

The Act permanently repeals the Individual Mandate by providing that for months beginning after Dec. 31, 2018, the amount of the individual shared responsibility payment is reduced to zero.

Individual AMT Retained, With Higher AMT Exemption Amounts

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the Act increases the amount of an individual’s alternative minimum taxable income (AMTI) that is exempt from AMT. This change in the regulations can be a significant reduction in the tax liability many individuals.

Increased Code Section 179 Expensing for All Businesses

For property placed in service in tax years beginning after Dec. 31, 2017, the maximum amount a taxpayer may expense under Code Sec. 179 is increased to $1 million, and the phase-out threshold amount is increased to $2.5 million. For tax years beginning after 2018, these amounts (as well as the $25,000 sport utility vehicle limitation) are indexed for inflation.

Qualified real property. The definition of Code Sec. 179 property is expanded to include certain personal property even though it is used predominantly to furnish lodging or in connection with furnishing lodging. The definition of qualified real property eligible for Code Sec. 179 expensing is also expanded to include the following improvements to nonresidential real property after the date such property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems. Also any other building improvements to nonresidential real property that aren't elevators or escalators, building enlargements or attributable to internal structural framework are Code Sec. 179 property.

Like-Kind Exchange Treatment Limited

Generally effective for transfers after Dec. 31, 2017, the rule allowing the deferral of gain on like-kind exchanges is modified to allow for like-kind exchanges only with respect to real property that is not held primarily for sale. However, under a transition rule, the pre-Act like-kind exchange rules apply to exchanges of personal property if the taxpayer has either disposed of the relinquished property or acquired the replacement property on or before Dec. 31, 2017.

New Deduction for Pass-Through Income of Business Entities

For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the Act adds a new deduction for non-corporate taxpayers for qualified business income–also referred to as the “pass-through deduction.” The deduction reduces taxable income, rather than adjusted gross income (AGI), but is available to taxpayers who take the standard deduction.

The deduction is generally 20% of a taxpayer's qualified business income (QBI) from a partnership, S corporation, or sole proprietorship.

Taxpayers in service related businesses, such as healthcare professionals, law, accounting, actuarial science, performing artists, consulting, athletics, financial services, brokerage services, including investing and investment management, trading, or dealing in securities, partnership interests, or commodities, and any trade or business whose principal asset is the reputation or skill of one or more of its employees are eligible. However, the deduction with respect to service businesses is phased out if the taxpayer's taxable income exceeds the threshold amount of $157,500 ($315,000 in the case of a joint return).

Taxpayers whose taxable income exceeds the threshold amount of $157,500 ($315,000 in the case of a joint return) are also subject to limitations based on the W-2 wages and the adjusted basis in acquired qualified property,

For partnerships and S corporations, the deduction is taken at the partner or shareholder level.

Modification of Net Operating Loss (NOL) Deduction

For NOLs arising in tax years ending after Dec. 31, 2017, the two-year carryback and the special carryback provisions are repealed, but a two-year carryback applies for certain losses incurred in the trade or business of farming.

NOLs generally can be carried forward indefinitely.

For losses arising in tax years beginning after Dec. 31, 2017, the NOL deduction is generally limited to 80% of taxable income (determined without regard to the NOL deduction). Carryovers to other years are adjusted to take account of this limitation.

NOLs of property and casualty insurance companies can be carried back two years and carried forward 20 years to offset 100% of taxable income in those years.

 

The following items were discussed as possible areas for change as a part of tax reform, but were retained unchanged by the Tax Cuts and Jobs Act.

Income Items

  • Employer provided housing exclusion
  • Dependent care assistance programs
  • Nonqualified deferred compensation
  • Sale of principal residence gain exclusion
  • Contributions to Medical Savings Accounts
  • Private activity bond interest and bonds for professional sports stadium

Retirement Plans

  • Contribution limits for 401(k), 403(b), 457(b) plans
  • Hardship and in-service distribution rules for qualified plans

Education

  • Lifetime Learning Credit
  • American Opportunity Credit
  • Coverdell contributions
  • Qualified tuition reductions by educational institutions
  • Employer provided education assistance
  • Savings bonds for education exclusion
  • Student loan interest

Credits

  • Minimum Tax Credit
  • Residential Energy Efficient Property Credit
  • Credit for Elderly or Disabled
  • Mortgage Interest Credit
  • Plug-In Electric Vehicle Credit

Businesses

  • Worker classification and information reporting requirements
  • Credit for Employer Social Security/MedicareTax on Tips
  • Renewable Electricity Production Credit
  • Energy Investment Tax Credit
  • Enhanced Oil Recovery Credit
  • Credit Producing Oil/Gas from Marginal Wells
  • Disabled Access Credit
  • New Markets Tax Credit
  • Employer Provided Child Care Credit
  • Work Opportunity Tax Credit
  • Tax-exempt status for professional sport leagues

Estate & Gift Tax

  • Basis of inherited assets
  • Gift tax annual exclusion