Tax Cuts and Jobs Act - Individual Update

July 31st, 2018

The recently enacted Tax Cuts and Jobs Act (TCJA) has altered the tax landscape for a lot of individuals and businesses. The changes are extensive and this letter provides an overview of some of the highlights to keep you informed. Due to the sweeping nature of the changes and the need for continued guidance, we'd like the opportunity to have a personalized conversation with you to discuss planning opportunities for your specific situation. Additional conversations and tax projections are likely necessary to ensure we maximize your tax benefits. Please call our office at your earliest convenience to schedule a meeting. Our fees for the meeting as well as any tax projections will be based on the time expended at our standard billing rates.

Increased standard deduction

The new standard deductions are:

* Head of household: $18,000
* Married filing jointly: $24,000
* All other taxpayers: $12,000

If you are age 65 or over, blind or disabled, you can add $1,300 to your standard deduction ($1,600 for unmarried taxpayers).

Although you may have historically had itemized deductions exceeding these amounts, other changes to itemized deductions may affect whether you are above the standard deduction in a given year. The increased standard deduction is effective through December 31, 2025.

Elimination of personal and dependent exemptions

In the past, taxpayers received an exemption for themselves, their spouse and each of the eligible dependents that they claimed on their tax return. The TCJA eliminated these exemptions through December 31, 2025.

Changes to itemized deductions

* The overall phase out of itemized deductions has been repealed.
* The itemized deduction for state and local taxes is limited to a total of
$10,000 ($5,000 for those using the filing status of married filing
separately). For example, if you paid $15,000 in state income taxes and $6,000 in real estate taxes on your home ($21,000 in total), you would not be able to deduct the $11,000 that exceeds the deduction threshold.
* Mortgage interest on loans used to acquire a principal residence and a second home is only deductible on debt up to $750,000 (down from $1 million). Loans in existence on December 15, 2017 are grandfathered (balance up to $1 million still allowed).
* Interest on home equity indebtedness (such as a home equity line of credit) is no longer deductible unless the debt is really acquisition indebtedness (used for home improvement). Consider whether the indebtedness was used for business or investment purposes to determine if an interest deduction may be available in a different category.
* Cash donations to public charities are now deductible up to 60% of adjusted gross income.
* Donations to colleges and universities for ticket or seat rights at sporting events are no longer deductible.
* Miscellaneous itemized deductions, such as investment management fees, tax preparation fees, unreimbursed employee business expenses and safe deposit box rental fees are no longer deductible.
* Medical expenses are deductible by the amount the expenses exceed 7.5% of adjusted gross income for 2018 (limit changes to 10% starting in 2019).

These changes (except as noted) to itemized deductions are in effect from January 1, 2018 through December 31, 2025.

Planning Points: Consider "bunching" charitable donations and real estate taxes to maximize your itemized deductions every two or three years. With the elimination of the deduction for unreimbursed employee business expenses, have your company/employer reimburse employee business expenses under an accountable reimbursement plan.

While the TCJA is effective now, there are still many uncertainties. Additional technical guidance and regulations are necessary to provide more clarity on some of the changes. The Internal Revenue Service is working to provide that guidance, which we expect later this year.

We are at your disposal to identify opportunities within the new law that apply to you and help steer you away from new pitfalls and challenges. Please call our office to set up a tax planning meeting. As always, planning ahead can help you minimize your tax bill and position you for greater success.