The 2018 tax information on page 22 of AAII’s Tax Guide has now been updated. This includes allowable tax benefits such as deductions and maximum contributions. Here’s a link to the PDF of this page. Scroll down below the link to read more details about these changes.
The changes cover the following:
For 2018, the standard deduction increases to $24,000 for married couples filing a joint return, $12,000 for those who are single or those who are married filing separate returns and $18,000 for heads of household. The increases are adjusted to inflation (in $50 increments), but will expire at the end of 2025 if not renewed. The additional standard deduction for the elderly and the blind ($1,300 for married couples and $1,600 for single taxpayers) still applies.
The personal exemption is phased out from 2018 through the end of 2025.
Child Tax Credit
In 2017 the maximum child tax credit for dependent children younger than 17 is $1,000, and refundable up to $1,000.
In 2018, the maximum child tax credit is $2,000 with a new adjusted gross income threshold of $400,000 for married joint filers ($200,000 for all other filers) through 2025. The credit is refundable up to $1,400.
Estate and Gift Tax Limits
The estate tax exemption is both portable and indexed to inflation. The exemption is $5.49 million in 2017. In 2018, the exemption will rise to $11.2 million. The basic exclusion amount will remain at the higher level through 2025, though increasing by the slower chained CPI inflation measure. This is a per-spouse exclusion and it is portable, meaning that if one spouse passes away, the surviving spouse can claim the exclusion, resulting in a total effective exclusion of $10.98 million in 2017 and $22.40 million in 2018. The large figures will prevent most families from having to pay estate taxes.
The estate tax rate is 40%. The step-up basis rule applies when an inherited asset is sold: The capital gain resulting from the sale is calculated as the difference between the proceeds at the time of the sale transaction and the value of the assets at the time of the inheritance.
Executors have to report the fair value of the property included in the gross estate to both the IRS and to the heirs. Beneficiaries claiming a basis for inherited property above the reported value may be subject to a 20% penalty.
The annual gift tax exclusion is $14,000 in 2017 and $28,000 for consenting couples. (You will need to file Form 709.) The exclusions will rise to $15,000 and $30,000, respectively, in 2018.
The floor for deducting medical expenses is temporary lowered to 7.5% of adjusted gross income for 2017 and 2018. The previous 10% floor is set to be reinstated in 2019.
Unreimbursed medical expenses are only deductible to the extent that they exceed 7.5% of adjusted gross income in 2017 and 2018 (10% in 2019 and beyond). Therefore, it is best from a tax standpoint to incur expenses—such as replacement eyeglasses or contact lenses, elective surgery, dental work and routine physical examinations—in a year in which you have already gone over (or in which the added expenses would take you over) the 7.5% threshold.
Miscellaneous Itemized Deductions
Miscellaneous itemized deductions are no longer deductible. The suspension of the ability to deduct such deductions exceeds 2% of adjusted gross income last through 2015. This category is large but includes:
- Tax preparation fees such as tax preparation software, tax publications and any fee paid for electronic filing; and
- Investment fees, custodial fees, trust administration fees and other expenses paid for managing your investments that produce taxable income.
New: Deducting Uninsured Personal Casualties
Uninsured personal casualties attributable to a federally declared disaster can be deducted only if they are attributable to a federally declared disaster and exceed 10% of adjusted gross income. Losses to theft are no longer deductible. The new rule is effect from 2018 through 2025.
State, Local and Sales Taxes
A $10,000 limit ($5,000 for married filing separate returns) on state and local tax deductions will be in effect from 2018 through 2025. This cap is not indexed to inflation. Sales taxes may be used instead of state and local taxes.
Alternative Minimum Tax (AMT)
The alternative minimum tax (AMT) exemption is $84,500 for married couples filing jointly and $54,300 for single filers in 2017. In 2018, the exemption has been raised to $109,400 and $70,300, respectively. The phase-out levels for 2018 have been increased as well, to $1,000,000 and $500,000, respectively. The TCJA’s higher levels are in effect through 2025 and are indexed to inflation.
Timing: Income & Deductions for Taxpayers Not Subject to AMT
You have opportunities to reduce your taxes if you can control the timing of either your income or expenses. However, it is important to make sure you understand whether you may be subject to the alternative minimum tax (AMT) before adopting these strategies. (Though the TCJA retained the AMT, it does not apply for incomes below $1 million for married couples filing joint returns and $500,000 for others.
The AAII Tax Guide online has been updated with these new figures. You can keep up-to-date with the 2018 tax reform changes here at the AAII Blog.