WE REVIEWED THE NEW TAX LAW AND THINK WE HAVE LISTED THE CHANGES HERE THAT AFFECT MOST PEOPLE. THIS IS NOT A COMPLETE LIST, JUST THE ITEMS THAT I THINK MOST PEOPLE WILL SEE. OUR RATINGS REFER TO THE EFFECT ON TAX LIABILITY. IF CHANGE COULD RAISE TAXES, IT IS POOR OR BAD. IF IT REDUCES TAX LIABILITY, IT IS GOOD OR VERY GOOD.
- THERE WILL NO LONGER BE 1040A OR 1040 EZ FORMS. You will see a smaller 1040, about half the size of the previous form. However, there will be 6 new schedules. The 1040 form was shortened by removing line items from the old 1040 and placing them onto new Schedules 1-6. MOST TAXPAYERS WILL NEED TO USE AT LEAST 2-3 OF THOSE SCHEDULES.
- THE STANDARD DEDUCTION HAS BEEN INCREASED TO $12000 (from $6350) FOR SINGLE OR MARRIED FILING SEPARATE, $24000 FOR MARRIED FILING JOINTLY OR QUALIFYING WIDOWER (from $12700), AND $18000 (FROM $9350) FOR HEAD OF HOUSEHOLD. This will be especially helpful to those who don’t itemize. WE RATE THIS AS VERY GOOD
- THE THRESHOLD FOR DEDUCTING MEDICAL EXPENSES IS 7.5% OF AGI, This will go to 10% in 2019. FOR THOSE WHO ITEMIZE, THE THRESHOLD FOR CLAIMING MEDICAL IN 2018 WILL BE LESS THAN THAT IN 2019. WE RATE THIS AS GOOD THIS YEAR FOR THOSE WHO ITEMIZE
- FOR THOSE WHO ITEMIZE, THERE WILL BE A LIMIT OF $10000 FOR THE AGGREGATE OF STATE AND LOCAL INCOME TAXES PAID OR ACCRUED. This will not be a problem for most filers in CO. WE RATE THIS AS NEUTRAL
- INTEREST ON HOME EQUITY DEBT IS NO LONGER DEDUCTIBLE UNLESS THE LOAN IS USED TO BUY, BUILD OR OR SUBSTANTIALLY IMPROVE THE THE TAXPAYER’S MAIN HOME. WE RATE THIS AS NEUTRAL FOR MOST TAXPAYERS. This could reduce your deductions if you have deducted home equity interest in the past but for most people, this problem will be reduced or eliminated by the doubling of the standard deduction.
- THE ACQUISITION DEBT LIMIT FOR MORTGAGE INTEREST HAS BEEN LOWERED TO $750,000 (MFJ, $375000 FOR SINGLE). This will reduce deductions for a fair number of Coloradoans though the doubling of the standard deduction may mitigate that affect. WE RATE THIS AS POOR TO NEUTRAL
- Expenses that were subject to the 2% AGI limit for miscellaneous itemized deductions are no longer deductible. This includes investment expenses, tax preparation fees, unreimbursed employee business expenses, etc. This will reduce deductions for many, especially those who had unreimbursed employee expenses though the doubling of the standard deduction may reduce that affect. WE RATE THIS AS POOR TO NEUTRAL
- THERE WILL NO LONGER BE A PERSONAL EXEMPTION FOR TAXPAYER, SPOUSE AND DEPENDENTS. In prior years, taxpayers received a deduction of over $4000 for each exemption they could claim for their dependents. WE RATE THIS AS POOR though the effects will be mitigated for most by the doubling of the standard deduction and/or the doubling of the child tax credit (below).
- THE CHILD TAX CREDIT HAS BEEN INCREASED FOR EACH CHILD UNDER THE AGE OF 17 TO $2000. ($1400 maximum refundable credit per child). Also, the income phase out is also higher so more families will qualify. WE RATE THIS AS VERY GOOD
- A NEW $500 TAX CREDIT IS ALLOWED FOR EACH QUALIFYING DEPENDENT THAT IS NOT A QUALIFYING RELATIVE. WE RATE THIS AS VERY GOOD
- THE TAX RATES ARE LOWER FOR NEARLY EVERYONE. All but the highest incomes will see tax rates lessened by 1-3%. WE RATE THIS AS VERY GOOD
MOST SMALL BUSINESS OWNERS, INCLUDING RENTAL PROPERTY OWNERS, WILL BE ABLE TO TAKE ADVANTAGE OF THE QUALIFIED BUSINESS INCOME DEDUCTION (QBID). Those with pass-through businesses such as S Corps, partnerships, sole proprietors, Schedule E and F filers can take advantage of this business. There are limitations for some types of businesses and there is an income threshold which reduces or eliminates the deduction as income increases. WE RATE THIS AS VERY GOOD
There will be a lot of questions this year due to the tax law changes. We here at AFS have spent a lot of time this year making sure we are ready to apply the new tax laws in such a manner that our clients see the greatest benefit.
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