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  • Individual Changes Due to Tax Cuts and Jobs Act October 2018

    Late last year, a new tax act called Tax Cuts and Jobs Act (or TCJA, for short) was enacted and has resulted in the most sweeping changes in the Internal Revenue Code since at least 1993. A majority of these provisions went into effect as of January 1, 2018 and many have sunset provisions at December 31, 2025. 

    These provisions, while codified earlier this year, are still being updated by additional revenue procedures and IRS guidance. We have outlined the changes that we felt were most relevant to our clients with regard to individual tax returns beginning with the 2018 tax year. We have also included a 4 page summary of the below information which you may view or download HERE

    Rate Schedules

    TCJA provides for a lowering of rates and expansion of the tax brackets across all taxpayer groups (married filing joint, single, married filing separate, head of household). However, while that in itself has a positive effect in lowering your personal tax liability, the new act eliminates the personal exemption (2017 $4,150).   


    While it increases the standard deduction to $24,000 for joint filers, $18,000 for HOH and $12,000 for single, it caps the deduction for state and local plus real estate taxes to $10,000 and eliminates the deduction for miscellaneous itemized deductions for items such as employee business expenses, professional fees and investment advisory fees. Thus, 2018 might be the first year in many years that you could be a standard deduction filer as unless you have significant charitable contributions, deductible mortgage interest and/or medical expenses, you will most likely be a standard deduction filer.


    TCJA greatly reduces the applicability of Alternative Minimum Tax (AMT) as the 2018 exemption amounts ($109,400 for MFJ; $70,300 for single or HOH) are reduced 25% of your AMT income exceeding $1,000,000 for joint filers and $500,000 for all others. Thus, it is easy to see that the number of folks impacted by AMT will be greatly reduced due to not only higher exemption reduction levels but also due to the limited deductibility of preference items which are included in AMT income (lower deductible state and local plus real estate taxes and miscellaneous itemized deductions).


    TCJA provides for a $2,000 child tax credit per qualifying child under 17, if your adjusted gross income is under $400,000 for MFJ and $200,000 for single. Up to $1,400 can be refundable to the extent that the credit exceeds your tax liability. As well, TCJA added a non-refundable $500 credit for certain qualifying dependents.

    Kiddie Tax

    TCJA changed the tax rates applied to a child's unearned income (interest, dividends, capital gain, K-1 income without active participation, etc. from the marginal rates of the parents to that used for trusts and estates.) Since these rates are very progressive, if your child has unearned income of over $2,100, the tax on that income will likely be higher.

    Estate and Gift Tax

    Finally, TCJA effectively doubled the base estate and gift tax lifetime exemption beginning in 2018 from $5.6 million per person to $11.2 million per person. 

    The above changes focus on TCJA changes for your individual/estate tax returns. There are several TCJA changes on the corporate side that impact the individual returns of S corporation owners, LLC members and sole proprietors due to the flow through of income from those entities. We will be sending an additional e-blast in the near future as it relates to corporate changes.

    One important caveat: most employers implemented the revised withholding tables in February 2018, and even though you may expect your 2018 tax liability to go down compared to 2017, you may have been receiving the benefit and possibly more during the year if you based your withholding on the tables. As a result, it may be beneficial to have us run tax projections with your projected wages and withholdings, so that you can correct any shortfalls with extra withholdings or a fourth quarter estimate and not be surprised in April 2019. As well, you can adjust your 2019 withholdings at the onset.

    As we prepared tax returns last spring, we tried to project 2018 taxes under the new TCJA, however, most people's situation changes over the course of a year. If you would like our professional staff to revisit those projections and prepare revised or new projections, please contact us in November as that is the time that we can best accommodate those discussions.

    Again, should you have any specific questions about your personal situation, please contact your Furrer & Associates, Inc. advisor at 440-899-7116. Thank you.

    *This information is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this post should not be acted upon without specific professional guidance. 

    Steve | 10/26/2018

    Westlake, OH Accounting, Furrer & Associates, Inc.

    Furrer & Associates, Inc. | 28045 Clemens Road Suite B , Westlake, OH 44145 | Phone: (440) 899-7116 | Fax: (440) 899-7182 | meghan@furrercpa.com