Big tax law changes mean even bigger opportunities for taxpayers. Take a look at some of the changes to come out of the Tax Cuts and Jobs Act and consider how they could affect you.
The Tax Cuts and Jobs Act was passed at the end of December 2017 with some of the most sweeping changes taxpayers have seen in 30 years. Here are a few big changes to come out of the new act — and what you can do about it.
1. The medical expense deduction threshold was lowered to 7.5 percent.
The tax reform bill retroactively lowers the threshold to deduct medical expenses in 2017 to 7.5 percent of adjusted gross income. The previous threshold was 10 percent. This new 7.5 percent threshold remains in place for 2018, but reverts back to 10 percent in the following years.
What this means: You may want to consider using the medical expense deduction this year. If there are any qualified medical expenses you can make (drug purchases, medical equipment, etc.) to push you over the new, lower threshold, consider doing so in 2018.
2. The healthcare individual mandate penalty stays in place until 2019.
The shared responsibility penalty (also known as the individual mandate) in the Affordable Care Act is effectively repealed by the tax reform legislation, but not right away. The penalty is set to zero in 2019, but remains in place for 2018.
What this means: You still need to retain your Forms 1095 this year in order to provide evidence of your healthcare coverage. Without proof of coverage, you may have to pay the higher of $695 or 2.5 percent of your income. Unless there are further changes coming, 2018 may be the last year you’ll need to worry about the individual mandate penalty.
More changes to consider for 2018 tax planning
We’re experiencing some of most significant tax law changes since the 1980s. There will be a lot of things to consider for tax planning this year. Here are some of the most significant:
- Reduced income tax rates
- Doubled standard deductions
- Suspension of personal exemptions
- New limits on itemized deductions, including:Combined state and local income, property and sales tax deduction limited to $10,000
- Casualty losses limited to federally declared disaster areas
- Elimination of miscellaneous deductions subject to the 2 percent of adjusted gross income threshold
- The child tax credit ($2,000 in 2018)
- A new $500 family tax credit
- 529 education savings plan expansion for K-12 private school education
- The estate tax exemption (doubled)
There will surely be more details on the tax reform changes and how they are implemented by the IRS in the weeks to come. In the meantime, contact us if you have urgent questions regarding your situation.