Tax Update for Individuals

By Ginny Graef, CPA, Partner | Jennifer F. Flinchum, CPA, CFP®, Partner

Tax Update for Individuals

By Jennifer F. Flinchum, CPA, CFP®, Tax Partner | Ginny Graef, CPA, Tax Senior Manager

Note: This article was originally published December 19, 2017 and may have changed due to finalization of the Tax Cuts and Jobs Act of 2017.

Highlighted below are some of the most notable individual income tax changes associated with the Tax Cuts and Jobs Act .  We will continue to monitor the changes and provide updates.

Please note that each taxpayer’s situation is unique and you should speak with your tax advisor before making any decisions. We have highlighted certain planning opportunities you may want to consider. Most of the changes noted below will sunset after 12/31/25.

Individual Income Tax Provisions

  • 7 tax brackets from 10% to 37%:  The top bracket for Joint filers is effective for income over $600,000 and Single/ Head of Household with income over $500,000
  • Elimination of personal exemptions
  • Increase in standard deduction to be adjusted annually for inflation ($12,000 for Single filers, $18,000 for Head of household and $24,000 for Joint filers)
  • Child tax credit for dependents under 17 of $2,000 to be phased out at $400,000 for Joint filers and $200,000 for all other filers
  • $500 tax credit for non-child dependents
  • Medical expenses deductible if greater than 7.5% of your adjusted gross income for 2018, phase-out increased to 10% of AGI for tax years after 12/31/18
  • 529 plan distributions up to $10,000 per year, per student allowed to be used for elementary or secondary school tuition
      Assuming your 529 plan conforms with the proposed change, utilize current 529 funds to pay private school tuition (elementary or secondary school). If you do not currently have a 529 plan, consider establishing and using such funds to immediately pay for private elementary or secondary school while capturing the VA income tax deduction.
  • Limits aggregate deduction of state/local income and property taxes to $10,000
      Since the new tax bill reduces the combined tax deduction for state income, personal property (PP) and real estate (RE) tax deductions to only $10,000 – pre-paying by year end is generally recommended. Unless you are already in AMT for 2017, if you have a RE tax bill or PP tax bill not due until early 2018, most likely you would benefit from paying it before year-end.  You should also consider paying in full your 2017 state income tax liability. Note that you cannot receive a deduction in 2017 for prepaying 2018 income taxes.
  • Mortgage Interest deduction limited to loans of $750,000 for debt acquired after December 15, 2017. After 12/31/25, limitation increases back to $1,000,000 regardless of when debt acquired
  • Interest on home equity debt not deductible
  • Elimination of miscellaneous itemized deductions subject to 2% AGI limitation
  • Elimination of phase-out on itemized deductions
  • Alimony not deductible nor included in income for divorces finalized after 12/31/18
  • Retains Alternative Minimum Tax (AMT) but increases exemption to $109,400 for Joint filers and $70,300 for all other taxpayers with phase-outs of the exemption increased to $1,000,000 for Joint filers and $500,000 for all other filers
  • Charitable contributions – limitation increased to 60% AGI for cash contributions
  • Elimination of charitable deduction for payments to college in exchange for the right to purchase tickets or seating at an athletic event
  • Repeal of penalty for not having health insurance beginning in 2019
  • Increase in estate/gift lifetime exemption to $11,200,000 per taxpayer through 1/1/26 (adjusted for inflation)
  • It is assumed that in 2026 the lifetime will return to the $5 million lifetime exemption (adjusted for inflation)

General Planning Opportunities for 2017

Delay Receipt of Income Until 2018

We expect income tax rates to go down for most taxpayers, so when possible, you should delay receipt of income until 2018. Do your best to defer bonus payments or delay the exercise equity options until 2018 when your tax rate will likely be lower. Under the same school of thought, you will want to take additional deductions in 2017 to take advantage of savings at the higher tax rate. Charitable contributions you were thinking of making in 2018 might generate more tax savings if made in 2017.

Estate Planning: Gifting Options

With the increase in the lifetime estate exemption through 1/1/26, you will want to speak with your estate tax attorney/ financial advisors in 2018 to discuss additional gifting options. The increase in the lifetime exemption is set to sunset in 2026, so you will want to make sure you plan accordingly.

Questions on how the proposed changes may impact your individual tax situation? Contact your Keiter representative or Email | 804.747.0000. We’re here to help.

Additional Tax and Estate Planning Resources:

Tax Update for Businesses

As 2017 Draws to a Close – Year End Reminders and Tax Filing Deadlines

2017 Year End Tax Planning: Are You Prepared?

“Long Term Care Planning: Is It Important and What Options Are Available?”

“Life Insurance in Business Succession Planning”

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About the Authors

Ginny Graef

Ginny Graef, CPA, Partner

Ginny enjoys working closely with her clients and their team of legal and financial advisors to provide tax planning solutions that meet her clients’ specific needs and goals. Ginny’s areas of expertise include income, gift, and trust and estate compliance and planning services. In addition, she focuses on compliance and consulting related to investment partnerships.

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Jennifer F. Flinchum

Jennifer F. Flinchum, CPA, CFP®, Partner

Jen partners with her corporate and individual clients to identify tax planning and credit opportunities while managing liability and risk. She applies her significant experience in tax compliance and strategic consulting for both privately held businesses and their owners. Her expertise also includes tax accruals, mergers and acquisitions, multi-state tax issues, audit controversy and executive compensation. Jen is the lead partner of Keiter’s Family, Entrepreneur, and Executive Advisory Services Team.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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