Tax Cuts and Jobs Act of 2017: Individual Income Tax Changes
The 2017 tax filing is nearly complete! This year we will have LOTS of planning and explanation in store as we prepare for the implementation of a host of new tax laws affecting both individual and business income taxes. Here are the items that we expect will impact our individual clients:
- Doubling of the standard deduction and elimination of personal exemptions – Currently about 25% of individual taxpayers itemize expenses on their tax returns. With the doubling of the standard deduction to $12,000 to Single filers and $24,000 to Married Filing Jointly filers, the number of taxpayers itemizing will drop down to less than 10% of total filers. This will eliminate the need for many taxpayers to keep track of those pesky receipts and reporting forms when tax time comes.
- Changes to rules for specific itemized deductions – State and local income taxes, which can make up a significant amount for many taxpayers, will be limited to $10,000. This includes property taxes and sales tax. This will especially impact taxpayers in states with higher income tax rates. Most miscellaneous itemized deductions that were subject to the 2% limitation will no longer be allowed. These deductions include unreimbursed employee expenses, tax preparation fees, investment management fees, professional dues, home office expenses, union and professional dues, work-related education, safety deposit boxes and legal expenses. Home mortgage interest will also be limited to debt on $750,000 (down from $1,000,000). Interest paid on home equity loans has also been disallowed. These new rules will apply to loans made after December 31, 2017.
- Child tax credit increases – The child tax credit will increase to $2,000 and taxpayers will also receive a credit of $500 for other dependent family members. The new credit will phase out for taxpayers with an adjusted gross income over $400,000, up from $110,000 previously. The refundable portion of this credit will go up to $1,400, from $1,000 previously.
- Changes to eligible expenses under Section 529 Plans – Effective January 1, 2018, you may distribute up to $10,000 out of a Section 529 College Savings Plan to pay expenses for elementary or secondary school expenses. There are no time requirements for deposits into Section 529 plans, so this is a great opportunity for taxpayers to get the 20% Indiana state income tax credit for deposits into those accounts up to $5,000.
- Alternative Minimum Tax Exemption increase – The AMT exemptions will increase to $70,300 for single taxpayers from $54,300 and $109,400 for married filing jointly taxpayers, up from $84,500.
- Affordable Care Act Individual mandate eliminated – Effective January 1, 2019, the penalty assessed to taxpayers without the required insurance coverage has been eliminated. This change will not affect the requirement for coverage in 2018.
- 20% deduction of qualified pass-through business income – generally, a taxpayer may deduct 20% of qualified business income from a partnership, S-corporation, sole proprietorship, REIT dividends, cooperative dividends, and publicly traded partnerships. (See article regarding business income tax law changes for further information.)