2018 Client Letter

Happy New Year One and All,

Let me start by saying WOW! We have a lot to go over. For the purposes of this letter I will attempt to condense the biggest tax law changes since the 80’s, while still hitting all the most popular points, as best I can.  The new tax law is commonly known as the Tax Cuts and Jobs Act (TCJA).

There are new Reduced Tax Rates: 10%, 12%, 22%, 24%, 32%, 35%, and a top rate of 37%. Most will fall into the next lowest rate from where they were in 2017 (if you were in the 15% bracket, chances are you are now in the 12% bracket). These rates are in effect until the year 2025.

Personal Exemptions are suspended through 2025, but there is an increase in the standard deduction. Single filers went from $6,350 to $12,000; Head of Household filers went from $9,350 to $18,000; and Married Filing Joint filers went from $12,700 to $24,000.

The increase in the standard deduction means that a lot of people will no longer itemize deductions. For those that find it advantageous to Itemize Deductions, here a few things to know. 

• Home Equity Loans are not deductible if used for      anything other than to buy, build or substantially improve the home that      secures the loan.
• The TCJA suspends until 2025, all miscellaneous      itemized deductions that are subject to the 2% floor. This includes unreimbursed employee      expenses!
• Personal Casualty and Theft Losses may only be      claimed if such loss was attributable to a disaster declared by the      president. Other rules apply, so if      you have incurred such a loss, ask me.

There is a new two part Enhanced Child Tax Credit. The first part temporarily increases the Child Tax Credit for Qualifying Children to $2,000 (up from $1,000), the refundable portion may not exceed $1400. The phase out thresholds have also been increased to $400,000 (up from $110,000) for MFJ filers, and $200,000 for all others. The old phase out thresholds affected a lot of filers who will now see the full deduction. The second part is an additional $500 non-refundable credit for Qualifying Dependents that are other than Qualifying Children.

Moving Expense Deductions are suspended through 2025 (there is an exception for members of the Armed Forces); also employer reimbursements are now included in Federal Gross Income. As of the writing of this letter (in the first week of January) Massachusetts’ latest draft of Form 1 instructions (dated December 10th), which are subject to change, specifically states that they do not adopt these changes. So if you think you may qualify for a moving expense deduction, check with me when it’s time to do your return. 

Under the TCJA, Divorce or Separation Agreements executed after 12/31/18, which include Alimony, are not deductible by the payor or included in income of the recipient. This means that an agreement executed before 12/31/18 is still deductible or included, even when payments are made after 2018. This is another change that Massachusetts does not adopt, and as of the writing of this letter, states that Alimony will continue to be deductible by the payor, and included in Gross Income of the recipient.

Think you don’t have to worry about the Affordable Care Act anymore? Well, for 2018 returns, taxpayers must continue to report coverage, qualify for an exemption, or pay the individual shared responsibility payment. The TCJA eliminates the Individual Mandate Penalty for 2019. Remember, Massachusetts Residents may still face a penalty for failure to obtain health insurance, even in 2019.

Are you Self-Employed? There is a new 20% deduction for a Pass-Through Qualified Trade or Business. An individual taxpayer may generally deduct 20% of qualified business income. The 20% deduction is allowed as a deduction reducing taxable income. A few other changes for the self-employed worth noting; bonus depreciation now applies to new and used property, and the TCJA repeals the deduction for Entertainment, Amusement, or Recreation that is directly related to or associated with the active conduct of the taxpayers trade or business (Holiday parties are in, but tickets to the game are out).

The IRS will begin accepting returns a little later this year, on January 29th. I will begin preparing returns earlier in January, in anticipation of hitting the button on the 29th. So remember to make appointments early to insure a convenient time slot, and drop offs are always welcome. 

I have finally re-done my Website! I still have to re-vamp the organizers to reflect the TCJA changes, but surf by and take a look (I even started a blog).

Here are the directions to my office:

From Rt. 2 East or West, take exit 19 for Phillipston.

At the end of the ramp, turn left onto 2AWest.

Turn left, directly after the King Phillip Restaurant, onto Baldwinville Road.

Bear right at Phillipston Center, you are now on Petersham Road

Follow Petersham Rd. approximately 1 mile, I am the 5th visible house on the left, featuring a deck out front, across from a large red barn.