New tax brackets for 2018
Alternative minimum tax (AMT)When the AMT is triggered, the taxpayer must add back certain items and recalculate their tax at an established flat rate. They will pay the higher of the two amounts. If you paid AMT last year but do not owe it now, you may be eligible for a credit. Note that these exemption amounts are $70,300 for single filers, $109,400 for married filing jointly and $54,700 for married filing separately. New standard deductionThe standard deduction was raised for all taxpayers in 2018.Those filing individually or as married filing separately will see a standard deduction of $12,000 while those filing jointly will see a deduction of $24,000.The standard deduction is $18,000 for taxpayers filing as head of household.
Tax laws affecting higher-income taxpayers
Tax reform suspended the overall limit for itemized deductions for tax years 2018-2025. Net investment income tax (NIIT) - NIIT is a 3.8% tax on a broad range of income sources such as interest, dividends, capital gains, rental and royalty income, non-qualified annuities and passive business revenue. It affects individuals, estates and trusts above certain income levels. -Taxpayers are subject to NIIT if their modified adjusted income exceeds $250,000 married filing jointly, $200,000 single or head of household and $125,000 married filing separately.
Taxpayers are subject to an additional 0.9% Medicare surtax on wages and self-employment income in excess of $250,0000 for married filing jointly, $200,000 single or head of household and $125,000 for married filing separately. For the 0.9% additional Medicare surtax, withholding is required only on wages above $200,000. If a couple’s combined income exceeds $250,000, it’s possible no Medicare surtax was withheld if each spouse earned below $200,000. This may result in under-withholding (and possible penalties). Ask your CPA whether you should pay estimates. 2
Higher education costs• American opportunity tax credit (AOTC): up to $2,500 of federal tax credits for expenses related to a four-year degree, and $1,000 of this is refundable • Lifetime learning credit: up to $2,000 per tax return for qualified tuition and related expenses Child and dependent care costs• Child tax credit: provides up to $2,000 per qualifying child under 17 • Child and dependent care tax credit: provides a credit of 20–35% of the cost of care up to $3,000 for one or $6,000 for two or more children under age 13, or a spouse or other dependent who is incapable of self-care
Charitable tax planningThere are many tax planning opportunities related to charitable giving even with the increase in the standard deduction. Working with a CPA on timing charitable deductions — consider bunching them in alternating years for example — is more important than ever · Evaluate both tax and philanthropic goals when making contributions. · Consider donating appreciated property (especially securities you are considering selling). · Consider a donor-advised fund to help with timing/control of contributions. · Donation for services are usually not permitted (although out-of-pocket expenses related to services rendered are normally deductible). · Contributions specified for certain individuals are not deductible (even if the related organization is a qualified charitable organization). · Be aware of record keeping and contemporaneous acknowledgment requirements. · Note any quid pro quo statements included on acknowledgments received. 3
Don’t forget FSAs or HSAs! There are ways to reduce your taxable income by making contributions to a flexible spending account to payout-of-pocket medical expenses or contributing to a health savings account (HSA). Your insurance plan will determine which applies. This provides a way to obtain a tax benefit for paying medical expenses, since taxpayers can only deduct unreimbursed medical/dental expenses that exceed 7.5% of adjusted gross income
Planning for ways to minimize taxes is an ongoing process. Here are some items to consider:
Your CPA can advise you more on these and other strategies.
Self-employed or own a business?
Tax planning for your business is more important than ever with the new tax law. Be sure that your books and records are in good order (or contact your CPA for bookkeeping assistance) so you can review planning opportunities with your CPA.
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