Tax Changes with the Tax Cuts & Jobs Act
The new tax reform bill became law late in 2017. We have outlined the main elements of the new tax law below. Most of these changes apply to 2018 tax years.
Ordinary Income Tax Brackets
There are seven ordinary income tax brackets, and the rates and income thresholds for these brackets have changed. The individual tax rates range from 10% to 37%.
Restrictions on Itemized Deductions
The state and local tax deductions are now capped at $10,000 for single taxpayers and those married filing joint returns. This limit is on state and local property taxes and either state/ local income taxes or state/local sales taxes.
The mortgage interest deduction will be limited to interest paid on up to $750,000 of mortgage indebtedness for mortgages incurred after December 15, 2017.
Taxpayers can deduct up to 60% of their AGI for cash charitable contributions. Written documentation from the charity is still required for contributions of $250 or more.
In 2017 and 2018, taxpayers can deduct unreimbursed medical expenses when such expenses exceed 7.5% of the taxpayers’ AGI.
Miscellaneous Itemized Deductions that exceed 2% of AGI will be eliminated. These deductions include tax prep expenses, union dues, investment fees, and unreimbursed employee expenses.
Child Tax Credit
The child tax credit increases from $1000 for each qualifying child, to $2000 for each qualifying child with $1400 being refundable. This is subject to phaseouts based on income.
529 plan distributions will also be tax-free when used for qualified elementary and secondary school expenses up to $10,000.
New Deduction for Pass-Through Income
Taxpayers may be eligible for a 20% deduction of qualified business income generated from a pass-through entity.
Please note that every individual’s tax situation is different. Please speak with us regarding the specifics of your tax situation and how these changes may affect you.
Tax Information for 2018
Social Security Wage Base
For 2018 the social security wage base is $128,400. This is an increase from the 2017 wage base of $127,200.
For 2018, the mileage allowance is 54.5 cents per mile for business travel. Miles driven for medical care or for a qualified move is 18 cents per mile. The mileage rate for providing services to a charity remains at 14 cents per mile.
2018 Federal Standard Deductions
$12,000 for single filers & married filing separately (up from $6,500 in 2017) $24,000 for married filers (up from $13,000) $18,000 for head of household (up from $9,550
*Beginning in 2018, personal exemptions are eliminated.
Retirement Plan Contribution Limits
- The 401(k) contribution limit for 2018 is $18,500 with an additional $6,000 allowed for catch-up contributions.
- The 2018 IRA contribution limit is $5,500 with an additional $1,000 allowed for catch-up contributions.
- The 2018 SIMPLE IRA contribution limit is $12,500 with an additional $3,000 allowed for catch-up contributions.
Other Tax Information for 2018
- The 2018 limit on Health Savings Account contributions is $3,450 for a single taxpayer with self-only coverage under a high deductible health plan. The limit for family coverage under a high deductible health plan is $6,900.
- The state income tax rate for Illinois increased from 3.75% to 4.95%, effective July 1, 2017.
- The state income tax rate for Indiana remains at 3.23% for 2018.
These are only a few key points regarding tax information for 2018. Please notify us if you have any questions or concerns.