Tax Cuts and Jobs Act Individuals
The Tax Cuts and Jobs Act is the biggest federal tax law change in over 30 years. Below are some significant changes affecting individuals. Note: Except where noted, the changes are effective for tax years 2018– 2025.
Kiddie Tax. Generally, the Kiddie Tax applies to certain children with unearned (investment) income that exceeds $2,100. For tax years 2018 through 2025, the tax is computed by applying the tax rates applicable to estates and trusts to the net unearned income of the child.
Adjustments to Income
Moving expenses. The moving expense deduction and the exclusion from gross income and wages for qualified moving expense reimbursements have been suspended and are not available for most taxpayers.
Exception: Qualified active duty service members of the Armed Forces (and their spouses and dependents) can claim the moving expense deduction and receive excludable moving expense reimbursements.
Alimony: Effective for instruments executed after December 31, 2018, alimony and separate maintenance payments are not deductible by the payor spouse and not included in income by the recipient spouse.
Personal and Dependency Exemptions Deduction
The deduction for personal and dependency exemptions is suspended for tax years 2018 through 2025, however, the dollar amount ($4,200 for 2019) is still applicable when applying the rules for determining a qualifying child or qualifying relative for other tax benefits.
Standard deduction amounts for 2019: $12,200 Single or MFS, $24,400 MFJ or QW, $18,350 HOH.
Age 65 and/or blind. The additional standard deduction amounts apply for age 65 or older, and/or blind, per person, per event: $1,300 MFJ, QW, or MFS, $1,650 Single or HOH.
Dependent. The standard deduction in 2019 for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,050, or earned income plus $350
• Medical and dental expenses. Qualified medical and dental expenses are deductible as itemized deductions to the extent they exceed 10% of adjusted gross income (AGI). For example, for an individual with an AGI of $50,000, only those expenses that exceed $5,000 (10% of $50,000) are deductible.
• Taxes paid. Deductible state and local income, property, and sales taxes are limited to a total amount of $10,000 ($5,000 MFS). No deduction is allowed for foreign real property taxes.
• Interest paid. Deductible home mortgage interest is limited to total acquisition debt incurred on or after December 15, 2017 on a main and second home combined to $750,000 ($375,000 Married Filing Separately). Acquisition debt incurred before December 15, 2017, remains limited to $1 million ($500,000 for Married Filing Separately). Interest on home equity debt not used to improve the home is not deductible.
• Charitable contributions. An individual’s deductible charitable cash contributions are limited to 60% of AGI (up from 50%). No charitable deduction is allowed for payments to higher education institutions in exchange for the right to purchase tickets or seating at an athletic event.
• Casualty and theft losses. A personal casualty or theft loss is deductible (subject to limitations) only if such loss is attributable to a federally-declared disaster.
• Miscellaneous deductions. Miscellaneous itemized deductions subject to the 2% AGI limit are no longer allowed. Examples include investment expenses, unreimbursed employee business expenses, and tax preparation fees.
• Phaseout. The phaseout of the itemized deductions based on AGI is suspended, which means itemized deductions are not limited.
Child Tax Credit
The Child Tax Credit maximum amount has doubled (from $1,000) to $2,000 per qualifying child under the age of 17. The credit is phased out when modified AGI exceeds $200,000 ($400,000 for MFJ), and is not indexed for inflation.
Additional Child Tax Credit. The portion of the Child Tax Credit that exceeds regular tax liability may be refundable up to $1,400 per qualifying child, adjusted annually for inflation. The earned income threshold for figuring the refundable portion is $2,500. Note: In order to claim either the nonrefundable or refundable portion of the Child Tax Credit, the qualifying child must have an SSN by the due date of the return.
Credit for Other Dependents
A non-refundable credit up to $500 is allowed for dependent who does not qualify for the Child Tax Credit and who is a qualifying relative that is a U.S. citizen, national, or resident of the United States. Thus, a dependent over age 16 that no longer qualifies for the $2,000 Child Tax Credit may qualify for a $500 Credit for Other Dependents, assuming the other dependency rules are met.
Alternative Minimum Tax (AMT)
The 2019 AMT exemption and phaseouts have increased.
AMT Exemption Amount Phaseout Ranges
Single or HOH ................... $71,700 .................... $510,300 to $797,100
MFJ or QW........................ $111,700 ............. $1,020,600 to $1,467,400 MFS...................................... $55,850 .................. $510,300 to $733,700
Individual Health Insurance Mandate
Effective for 2019, the shared responsibility payment (penalty) under the Affordable Care Act for not maintaining minimum essential health insurance coverage for you or your dependent is zero.
Contact Farris & Furlan LLC
There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following:
• Pension or IRA distributions.
• Significant change in income or deductions.
• Job change.
• Attainment of age 59½ or 70½.
• Sale or purchase of a business.
• Sale or purchase of a residence or other real estate.
• Notice from IRS or other revenue department.
• Divorce or separation.
• Charitable contributions of property in excess of $5,000.