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Here is the information that will be presented at the next meeting.  Please review and prepare your questions in advance, Thank You.

DAVID JACOBS
CERTIFIED PUBLIC ACCOUNTANT
PEAR TREE PLAZA
289-A ROUTE 33 EAST, SUITE 2
MANALAPAN, NJ 07726-8365
 
PHONE (732) 446-3655 / FAX (732) 851-4204
 
 
TAX NEWSLETTER - JANUARY 2018
 
 
TAX CUTS AND JOBS ACT OF 2017 (THE "ACT")
 
 
Dear Clients and Friends,
 
 
Tax season will soon be here. Major tax changes are going into effect in 2018 but for now very few tax provisions will affect your 2017 tax returns. This tax bill passed by Congress at the end of December 2017 is the first tax reform act of its magnitude in 31 years when Ronald Reagan was president.  Depending on how and the extent to which you are affected by this Act will determine whether you view it as "tax reform."  The following summarizes the highlights of the Act's tax changes:
 
 
FOR INDIVIDUALS
 
 
Lower Tax Rates and Wider Tax Brackets - The pre-Act tax rates were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The new tax rates are lower: 10%, 12%, 22%, 24%, 32%, 35%, and 37% and the cut-off points for each rate have been widened, putting everyone in a lower tax bracket.
 
Personal Exemptions for individual filers and their dependents are eliminated. Under pre-Act law the amount deductible for each personal exemption was $4,150.
 
Standard Deduction Increased - The Act increases the standard deduction to $24,000 (up from $13,000) for married individuals filing a joint return, 18,000 for head-of household filers (up from $9,550) and $12,000 for single filers (up from $6,500). The additional standard deduction for those 65 or older and or blind ($1,300 for each married taxpayer and $1,600 for single taxpayers) is retained.
 
 
Kiddie Tax Modifications
 
Pre-Act law : Under the "kiddie tax" provisions, the net unearned (investment) income of a child was taxed at the parents' marginal tax rates if the parents' tax rates were higher than the tax rates of the child.  The remainder of a child's taxable income (i.e., earned income, plus net unearned income up to $2,100, less the child's standard deduction) was taxed at the child's rates.  The kiddie tax applied to a child if: (1) the child had not reached the age of 19 by the close of the tax year, or the child was a full-time student under the age of 24 and either of the child's parents were alive at such time; and (2) the child's unearned income exceeded $2,100.
 
New Law:   For tax years beginning 2018, the taxable income of a child attributable to earned income is taxed under the rates for single individuals, and the taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates (see below).  This rule applies to the child's ordinary income and income taxed at preferential rates.
 
2018 Tax Rates for Trusts and Estates
 
     If Taxable Income is Between:            Then the Tax Due is:
 
     $0 to $2,500                                            10% of taxable income
 
     $2,551 to $9,150                                      $255 + 24% of the amount over $2,550
 
     $9,151 to $12,500                                    $1,839 + 35% of the amount over $9,150
 
     $12,501 and greater                                  $3011.50 + 37% of the amount over $12,500
 
 
Some Deductions and Credits are Increased, Reduced or Eliminated:
 
  • State and Local Taxes - The Act limits itemized deductions for any combination of residential property taxes and income or sales taxes to $10,000 ($5,000 for married taxpayers filing a separate return). However, property taxes remain fully deductible for taxpayers in a business, so taxes paid on rental property can be expensed in full.
 
  • Mortgage Interest Deduction is Limited - Interest can be deducted on up to $750,000 of new debt on a primary or secondary residence, down from $1 million previously. For debt incurred before December 15, 2017, the new law allows homeowners to keep the current limitation of $1 million ($500,000 in the case of married taxpayers filing separately).  The Act allows a taxpayer to continue to include mortgage interest on second homes, but with those lower dollar caps on both homes together. However, no interest deduction will be allowed for interest on home equity loans unless the home equity loan was used as acquisition indebtedness.
 
  • Miscellaneous Itemized Deductions - that are subject to the 2% floor (such as certain investment expenses, professional fees, home office deductions, license and regulatory fees, dues to professional organizations and unreimbursed employee business expenses) are eliminated.
 
  • Medical Expenses - The medical expense deduction is enhanced by lowering the threshold for the deduction to 7.5% (from 10%) of adjusted gross income (AGI) for tax years 2017 and 2018. Prior to 2017 the 7.5% threshold was only applicable to taxpayers 65 and over.
 
  • Personal Casualty and Theft Losses - This deduction is eliminated, with the exception of losses occurring within federally declared disaster areas.
 
  • Overall Limitation on Itemized Deductions Eliminated - Under pre-Act law, higher income taxpayers who itemized their deductions were subject to a phase-out of these deductions. The Act eliminated the gross income-based reduction of itemized deductions.
 
  • Charitable Contribution Deduction - The Act increases the limitation on cash donations to qualified charities from 50% to 60% of gross income.
 
Deductions Against Gross Income:
 
  • Educator Expense - The Act does not reinstate the $250 "above the line" deduction for education expenses. It expired at the end of 2016.
 
  • Alimony - The Act eliminates the deduction for alimony payments and the recipient does not have to report the alimony as income. The new rules will apply only to divorce or separation agreements executed after December 31, 2018.
 
  • Moving Expense - Under pre-Act law an employee could claim a deduction for moving expenses incurred in connection with starting a new job if the workplace was at least 50 miles farther from a taxpayer's former residence than the former place of work. The Act eliminates this deduction, with the exception for members of the military (in certain circumstances).
 
Tax Credits
 
  • Child Tax Credit - The child tax credit is increased from $1,000 to $2,000 per qualifying child (under age 17 at December 31st). Up to $1,400 of that amount is refundable.  Refundable means that even if you have less than that in calculated tax (or zero tax) you receive the $1,400 (or a multiple of $1,400 if you have more than one qualifying child).  It also raises the gross income phase-out thresholds to $400,000 for joint filers and $200,000 for all others so that more taxpayers can get the credit.
 
 
  • Tax Credit for Dependents Who Are Not a Qualifying Child -A $500              nonrefundable tax credit will be provided for each non-child dependent (for
     example, an elderly parent or disabled adult child you take care of).  This credit
     phases out under the same thresholds as the child tax credit.
 
Tax Rates on Long-Term Capital Gains and Qualified Dividends Do Not Change - Under pre-Act law capital gains and dividends rates depend on your tax bracket. The Act increases the brackets. For 2018 the 0% rate will apply for taxpayers with taxable income under $38,700 on single-filed returns and $77,400 on joint returns. The 20% rate starts at $425,800 for singles and $479,000 for joint filers. The 15% rate applies to filers with income between those points.
 
Alternative Minimum Tax (AMT) - The exemption amount is increased to $109,400 for joint filers, $70,300 for singles and heads of households and $54,700 for married filing separate filers. It also raises the exemption phase-out levels so that a 100% phase-out will not apply until an income level of $1 million for joint filers or $500,000 for singles and heads of households.
 
Affordable Care Act - The requirement that taxpayers have health insurance, or qualify for an exemption, or pay a penalty is repealed for penalties assessed after 2018.
 
Federal Estate Tax -The pre-Act allows an exclusion from any estate or gift tax of $5.49 million for singles and $10.98 million for married couples in 2017. The Act now allows singles to exclude about $11.2 million and married couples to exclude up to $22.4 million for 2018. The maximum federal estate tax rate remains 40%. The annual gift tax exclusion for 2018 is increased to $15,000 per donee (recipient).
 
Retirement Accounts - The Act generally retains the current rules for 401(k) and other retirement plans. However, it repeals the rule allowing taxpayers to undo (recharacterize) conversions to a Roth IRA and recover the income tax paid on the conversion.
 
Also, employees whose retirement plan terminates or who separate from employment while they have plan loans outstanding would have until the due date for filing their federal income tax return for that year to contribute the loan balance to an IRA in order to avoid from being taxed as a distribution.
 
Education - The Act retains the student loan interest deduction. It also enhances Section 529 college savings plans to allow annual distributions of up to $10,000 per student to pay tuition for elementary and secondary education (kindergarten through high school). Previously only college education was included.
 
 
 
 
 
There are Favorable Changes to ABLE Savings Programs for the Disabled - The Act allows limited tax-free rollovers from 529 plans to ABLE accounts.  It also lets ABLE account benefactors make contributions to their accounts above the $15,000 annual gift tax exclusion limit.  These contributions are eligible for the Saver's Credit for benefactors.
Tax-favored savings accounts can be established under the Achieve a Better Living Experience (ABLE) program to encourage individuals and families to provide private tax-free funding to assist disabled individuals in maintaining a healthy, independent and quality lifestyle.
 
An ABLE account is an account established and owned by a beneficiary and maintained under a qualified ABLE program. A designated beneficiary of an ABLE account is the  individual for whom the account is established for the purpose of meeting the qualified disability expenses of that person.  The beneficiary is an individual who is disabled or blind, with the onset of the disability or blindness occurring before the individual attains age 26.  The person must either be entitled to benefits based on blindness or disability under the Social Security Act, or must have a disability certificate on file with the IRS for the tax year.
 
ABLE programs are modeled along the lines of qualified tuition programs under Code Section 529.  A qualified ABLE program is established and administered by a state or agency, under which a person may make contributions for the benefit of an eligible individual to an ABLE account.
 
ABLE beneficiaries cannot have more than $100,000 in an ABLE plan without losing Medicaid and Supplemental Security Income (SSI) benefits.
 
 
 
FOR BUSINESSES
 
 
 
Lower Tax Rate - Regular corporations ("C" Corporations) will pay tax at a flat rate of 21%, which is a reduction from the current 35% top rate. This lower rate begins in 2018.
 
Alternative Minimum Tax (AMT) - was eliminated for businesses.
 
Pass-Through Entities - such as sole proprietors, owners of "S" corporations, partnerships and LLCs, REIT shareholders and partners in publicly traded partnerships will get a new 20% deduction off qualified taxable business income.
 
 
 
 
 
 
The deduction phases out for high earners in professional fields, such as law, consulting, accounting, health or financial services, with total taxable income in excess of $315,000 for joint returns and $157,500 for all other taxpayers.  The deduction phases out between $315,000 and $415,000 of total income for joint returns and between $157,500 and $207,500 for other taxpayers.
 
 
We look forward to seeing and speaking with you soon during the upcoming tax season. We wish you and your family a very Happy New Year!
 
Sincerely,
 
David Jacobs, Laurie Shapiro, Pamela Friedman and Stuart Kugelmas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax Newsletters/2018 January Tax Newsletter - 2017 Tax Act.docx
 
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