The Taxpayer Advocate Service did a great job in outlining 2018 tax law changes by topic while comparing them to 2017.
Form 1040 Redesign
Form 1040 has been reduced in size to fit on a postcard.
All of the line items from the prior year 1040 that were removed to accomplish this change have been offloaded to 6 new Schedules.
What this looks like and where everything went is discussed on this site at
Form 1040, Schedules & Tax Tables.
2018 Federal Tax Filing threshold
Table from IRS Pub 4012, p H-10
Standard Deduction
The Standard deduction has almost doubled for all filing statuses.
Single or Married filing separately—$12,000
Married filing jointly or Qualifying widow(er)—$24,000
Head of household—$18,000
Tricky bit:
For a Taxpayer that can be claimed as a dependent by another person the Standard Deduction CANNOT EXCEED the greater of
$1,050
Sum of $350 plus individual’s earned income ≤ $12,000
Worksheet to calculate Pub 4012, p F-2
Exemptions
Personal & Dependency exemptions are reduced to $0.
$4,150 exemption amount used for Qualifying Relative gross income test
In effect for tax years 2018 through 2025 by order of the Tax Cuts and Jobs Act.
This change impacts tax preparation for tax year 2019 but the dates of the underlying law relates to 2018.
Divorce decrees or orders executed after 12/31/2018. Alimony paid and Alimony received will not have any tax implications for decrees executed after this date.
Alimony received will NOT be considered compensation for IRA purposes.*
Divorce decrees or orders executed ON or BEFORE 12/31/2018. Grandfathered provisions will apply to these arrangements.
Alimony payments will continue to be deductible [Sch 1, Line 31]
Alimony received will continue to be taxable [Sch 1, Line 11]
Alimony received will continue to be considered compensation for IRA purposes.
Topic Number 451 - Individual Retirement Arrangements (IRAs)
* Only taxable alimony is considered compensation for IRA purposes.
Student Loan Debt
Student loan debt is forgiven upon the death or disability of the student.
This is no longer considered income on Sch 1, Line 21.
AARP Volunteers: It appears that we will not have to make any determinations about this as the issuers are instructed NOT to use 1099-C to report these discharges. (Click for 1099-C instructions)
Home Mortgage Debt Interest deduction is reduced (Pub 936)
Acquired on or after 12/15/2017 - limited to interest on $750,000 ($375,000 MFS) of debt
Acquired before 12/15/2017 - limited to interest on $1,000,000 of acquisition debt.
State & Local income tax limited to $10,000 [$5,000 for MFS]
Medical expenses reduced by 7.5% AGI in 2018
[in 2019 will return to 10% of AGI]Miscellaneous itemized deductions that were subject to the 2%-of-adjusted-gross-income floor are no longer includable.
The most important changes to keep in mind
The dependent child MUST have a Social Security number
Maximum Child Tax Credit is $2,000.
Refundable Add’l Child Tax Credit max $1,400
[Use Form 8812]
These credits are discussed on this site at
Dependents & Child Tax Credits
Example:
Example of how the Child Tax Credit and the Additional Child Tax Credit work together.
In the image below notice:
The nonrefundable CTC (shown on row 10) can only reduce tax to zero.
Additional Child Tax Credit (shown on row 13) can only
a) provide a MAX benefit of $2,000 when coupled with the CTC (column B), OR
b) provide $1,400 refundable credit all subject to earned income over $2,500 (column C).
CTC can only reduce tax to zero. Additional Child Tax Credit can only a) provide a MAX benefit of $2000 whencoupled with the CTC, or b) provide a $1,400 refundable credit all subject to earned income over $2,500.
Other Dependents Credit
New in 2018
Form 1040, Line 12a.
Nonrefundable credit of up to $500 for each eligible dependent who can't be claimed for the child tax credit.
Credit is figured using the Child Tax Credit and Credit for Other Dependents Worksheet.
Preparing a return that requires calculation of the Kiddie Tax is now within Scope for Tax-aide.
Net unearned income over $2,100 is taxed using the brackets and rates for trusts and estates. This is a PERMANENT change to the tax code.
Form 8615 - Tax for Certain Children Who Have Unearned Income
Form 8615 - Instructions
Pub. 929, Tax Rules for Children and Dependents
example.
In the summer of 2018 Rosie, 16, earned $1,500 at her father’s beachside market. She also received $10,000 (rental income) for her interest in her grandmother’s LLP.
Standard Deduction is $350 + $1,500 = $1,850
Taxable Income is $11,500 - $1,850 = $9,650
All Rosie’s income is taxed as UNEARNED because her Standard Deduction is greater than her Earned income ($1,850 > $1,500).
The first $2,100 is below the Kiddie Tax threshold.
This is now within Scope for Tax-aide.
Available on tax returns with Schedule C profit.
Covered individuals include taxpayer, spouse and dependents
Requirement that the policy be “established under the trade or business”
Policy may be in the names of any of the covered individuals
(I know. This defies logic but remember this is for a pass-through entity reporting on a Sch C where the owner is indistinguishable from the business.)
Insurance can include:
Medicare (paid by taxpayer or spouse when filing MFJ)
Dental, vision, supplemental, etc.
New in 2018
Appears on Form 1040, Line 9.
20% of the LESSER of Qualified Business Income & Taxable Income.
Discussed in detail on this site at QBI Deduction
Tax Rates & Brackets
Modifications of the tax rate structure for 2018 and beyond.
A description of these changes and their implications is found in Pub 5307, page 1