(updated 12/19/2018)

Some of the Items of Impact on your 2018 Personal Federal Return from the Tax Cuts & Jobs Act

  • Standard Deductions raised to $12,000 for Singles & $24,000 for Married Couples filing jointly.  On the surface, this appears to be a positive change.  However, the personal exemptions have been eliminated ($4050 per person).  Also, some states (i.e. Georgia) have not increased their standard deduction.  For example, GA's standard deduction is $3000, even though the Federal's is $24,000.  However, GA still has personal exemptions.
  • The threshold for the medical expense deduction is lowered to 7.5 percent of adjusted gross income (AGI) but reverts back to 10% for 2019. 
  • The state and local tax deduction (SALT) is capped at $10,000. This includes both state income or sales taxes and property taxes.
  • The charitable deduction limit is increased to 60 percent of AGI. 
  • No home equity interest deduction can be claimed unless the taxpayer can document the expenses to buy, build or improve the home.  
  • The deduction for miscellaneous itemized deductions subject to the 2 percent of AGI floor was repealed through 2025, including unreimbursed employee business expenses, investment expenses, and tax preparation fees.
  •  The 20% deduction (Section 199a Deduction) for owners of pass-through businesses (S-Corporations, Partnerships, Sole Proprietorships) is claimed on the new Line 9 on the draft Form 1040. There is a need to determine qualified business income, and taxpayers may also need to determine if theirs is a specified service trade or business, if there are W-2 wages, and the unadjusted basis of qualified property immediately after acquisition. For owners of partnerships and S corporations, business information should be provided in Box 20 of Form K-1. 
  • The Child Tax Credit has increased from $1000 to $2000 per qualifying child.  
  • There is a new $500 deduction for a qualifying relative (similar to the Child Tax Credit).
  • The Moving Expense deduction and exclusion are gone for everyone except members of the Armed Forces. 
  • The Affordable Care Act individual mandate (& penalty for not having health insurance) is still required for 2018 but it expires for 2019.
  •  There are higher expensing limits for capital purchases under Code Sec. 179 and bonus depreciation (currently 100 percent). Be careful, however – higher expensing is likely to reduce the 20 percent deduction for owners of pass-through businesses. 
  • There is no carryback of net operating losses to prior years unless for farming and certain insurance companies. Prior to these changes, you could carry back an NOL to the 2 prior years before carrying it forward to the next year. Also, the NOL deduction is limited to 80% of taxable income (with the remainder of the NOL carrying forward).
  • There is no deduction for entertainment expenses. The 50 percent deduction for meal expenses survives if the taxpayer can identify the meal expense separately from the entertainment expense. 
  • Also, unrelated to the Tax Cuts & Jobs Act, more than 30 tax breaks have expired for 2018 and have not yet been extended by Congress. They include many energy-related provisions and specific industry provisions. For individuals, they include the tuition and fees deduction, the mortgage insurance premium deduction, and the forgiveness of mortgage debt exclusion.  


IRS Has Released New Draft Tax Forms

The IRS has released some new draft tax forms, including the "postcard" 1040.  However, instead of simplifying anything, there are now simply more schedules to report the information that has been removed from the old 1040.  Meet the new Schedules 1 through 6. 

Schedule 1 - Additional Income & Adjustments to Income: This is where most of the 1st page of the old 1040 has moved.  Many of the items will also still require their traditional Schedules as well (i.e. Schedule C for sole proprietorship, Schedule D for capital gains, etc).

Schedule 2 - Tax: This is where lines 44 - 46 on the 2nd page of the old 1040 have moved (Tax, AMT, Excess Advance Premium Tax Credit Repayment).  Again, you will still need to use the traditional forms that feed into these lines (i.e. Form 6251 for AMT, Form 8962 for the Excess Premium Tax Credit, etc).

Schedule 3 - Nonrefundable Credits: This is where lines 48 - 56 of the old 1040 have moved (i.e. Foreign Tax Credit, Dependent Care Credit, Education Credits, etc).  Still the traditional associated forms will also need to be filed.

Schedule 4 - Other Taxes: This is where lines 57 - 63 of the old 1040 have moved (i.e. Self-Employment Tax, Additional tax on early withdrawals of retirement plans, Net Investment Income Tax, etc).  Additional Forms still apply.

Schedule 5 - Other Payments & Refundable Credits: Lines 65 - 73 of the old 1040.  Basically all the refundable payments or credits that are not federal taxes withheld on your W-2 or 1099. 

Schedule 6 - Foreign Address & 3rd Party Designee:  This used to be a single additional line on the top of the 1st page of the old 1040 & a single line on the bottom of the 2nd page.  

IRS to Publish Regulations Regarding Section 199A Later this Year:

The Internal Revenue Service says that the agency will likely issue guidance on Section 199A (the section affecting taxation of pass-through entities) sometime in the late summer or early fall.  For those unfamiliar with Section 199A, it is the part of the new "Tax Cuts & Jobs Act of 2017" law (see below) that allows a 20% deduction of certain modified income from pass-through organizations (S-Corporations/Partnerships/Sole Proprietorships) to their shareholders/partners/sole-proprietors.  But there are certain types of service companies that are not allowed the deduction a certain income level & a complicated set of calculations that goes with it the Section.  The Section, as written, does not explain well how to apply these calculations or have clear enough definitions.  We are waiting for the IRS to give much-needed clarity to the process so that we can best advise our clients.


H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (formerly titled "Tax Cuts and Jobs Act of 2017")

Passed on 12/22/17, the afore-stated Act passed both the House & the Senate & became "Public Law No: 115-97".  There will still be technical adjustments needed before actually implementing the bill due to  contradictions or errors within the law. The law goes into effect for the tax years beginning after 2017.

Some of the more generally applicable changes to Individual tax returns are listed here

Some of the more generally applicable changes to Business tax returns are listed here