Recent tax legislation has passed that will affect tax returns over the next few years. Here are a few of the changes that may impact your returns.
1. Before the tax reform, there were 7 tax brackets. After the change, there are still 7 tax brackets but the tax brackets for married filing jointly with taxable income above $156,150 have a higher top end than previously. The same is true for single filers with taxable income above $77,401.
2. The alternative minimum tax (AMT) exemption amount has increased for both married filing jointly and single filers.
3. The old standard deduction of $13,000 for married filing jointly has increased to $24,000. Likewise the old standard deduction of $6,500 for single filers has also increased to $12,000. For all filers, the personal exemption of $4,150 has been repealed.
4. Itemized deductions (medical expenses, state taxes withheld, property taxes, mortgage interest, contributions and miscellaneous non-reimbursed expenses) have also been adjusted. The deduction for state and local income taxes, sales tax and property tax is now limited to $10,000 for both married and single filers. Most miscellaneous itemized deductions that were subject to the 2% of Adjusted Gross Income will no longer be allowed.
5. Medical expenses for tax years 2017 and 2018 must exceed 7.5% with the excess being deductible.
6. Mortgage interest on principal residences and second residences will deductible up to a combined total of $750,000 of acquisition debt. Pre December 16, 2017 mortgages will be deductible up to a combined total of $1,000,000 of acquisition debt. Other rules also apply. If you are in this situations, please contact us for more info. In addition, interest on a HELOC will no longer be deductible.
7. Section 529 plan distributions of up to $10,000 per year per student can be used for tuition at an elementary or secondary public, private or religious school.
8. The child tax credit for a child under the age of 17 at year's end will be $2,000. Previously this credit began phasing out at income of $75,000 (single filers) and $110,000 (married filers). Now the phaseout does not begin until income of $200,000 (single filers) and $400,000 (married filers).
9. The individual mandate requiring the purchase of health insurance has been repealed.
10. Most of these changes will be effective with the tax year beginning January 1, 2018.
As we learn more about the new tax laws, there are a few more changes to add to the previous list.
1. The moving expense deduction will only be available for military personnel.
2. Effective for divorces after 12/31/18, maintenance/alimony will not be a deduction for the person paying nor will it be income for the recipient.
3. In the past, a traditional IRA could be converted to a Roth IRA. If the value of the converted IRA dropped, the Roth IRA could be recharacterized back to a traditional IRA. With the new law, recharacterization is no longer allowed.
4. In the past, personal casualty losses from fires, floods and/or thefts could be deducted if the loss met certain criteria. With the new law, taxpayers may claim those losses only if the damage is in an area the president has declared to be a disaster area.
What should you do to help yourself through the 2017 tax season? For people who itemize, you should consider prepaying the property taxes on your principal and secondary residences as this is the last year those expenses will not be capped at $10,000 (this figure includes state and local taxes withheld, property taxes on your principal residence and second residence). In addition for people who will be itemizing for the last time on the 2017 tax returns, prepaying your 2018 charitable contributions is recommended.
2017 Tax Updates
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When will you receive your refund?
The answer depends on how you filed your return.
If you e-file, your federal refund should be direct deposited within two to four weeks. Your state refund should be about a week later.
If you file a paper return, the IRS should issue your refund check within six to eight weeks. The state will be approximately the same time frame.