New Year Changes

Here is how things stack up for 2018 and beyond:

The following tax law provisions were enacted effective 1/1/18 — the Standard deduction is now $12,000 (single filers) and $24,000 (married filing joint filers). These amounts will be indexed for inflation using the governments CPI-U inflation factor. There are no ($0) personal exemptions (basically another deduction). Fewer individuals will benefit from itemizing their deductions. Individuals use the greater of their itemized deductions (medical, taxes, charitable, interest, and other miscellaneous) or standard deductions to compute taxable income (taxable income = income less deductions). The tax itemized deduction limit is $10,000. The child tax credit for dependent children was increased to $2,500. Overall, the tax rates were reduced in computing federal income taxes. Federal income taxes are progressive and the applicable increases as taxable income rises. The depreciation recovery period is 15 years for qualified improvements to nonresidential real estate and the overall dollar limitation on Section 179 tangible personal property is $1,000,000 subject to business income requirements. Section 179 allows an immediate tax deduction for equipment used in business.

Medical costs must exceed 7.5% of adjusted gross income (“AGI”) rather than 7.5% to become an itemized deduction. The overall limit on flexible spending accounts is $2,500.

The social security portion of FICA payroll tax is 6.2% in 2018. The medicare portion of FICA payroll tax is 2.35% (vs 1.45%) if your salary is in excess of $250,000 for married taxpayers, and in excess for $200,000 for unmarried taxpayers.

The long term capital gains tax rate (currently 15%) for those taxpayers in the 22% and higher tax brackets is 20% if your income exceeds $400,000 ($450,000 for married joint filers).

Itemized deductions. The “Pease amendment,” was removed.  This provision reduced the amount of itemized deductions available in computing taxable income.

Bonus depreciation has new life and allows immediate deduction of the cost of new trade or business equipment.