As you are aware, Congress passed and the President signed a bill which makes major
changes to the income tax laws. Most of the changes were effective beginning with 2018. The most significant changes are presented and are bolded.
Affordable Care Act
Beginning January 1, 2014, the Affordable Care Act required that everyone have health
insurance, and everyone who files an income tax return must indicate whether they had health insurance each year. The Act imposes penalties if health insurance was not obtained for the entire year for the taxpayer(s) and all dependents. The penalty is 2.5% of the household income or $695 per adult and $347.50 per child with a maximum family penalty of $2,085 or 2.5% of income,
Coverage can be obtained through the Health Insurance Exchanges such as Covered CA. A
subsidy may be available depending on your household income as shown on a prior year’s
income tax return, and you may be eligible for an additional subsidy or you may be required to repay some or all of the subsidy based on your income in 2018. The Exchange will issue IRS form 1095-A to report your insurance coverage and subsidy.
Additionally, health insurance companies will be issuing IRS form 1095-C to report 2018 health insurance coverage information to you and to the IRS. Please be sure to provide this form to us with your income tax documents.
Beginning in 2019, the individual mandate requring each American to have insurance or incur a penalty is eliminated.
Estate and Gift Tax Exemption Increased; Change in Annual Gift Exclusion
The exemption amount for the estate and gift tax is tied to inflation. The exemption amount for 2018 was $11,180,000, and the amount for 2019 is $11,400,000.
The annual gift exclusion amount increased to $15,000 to each person starting in 2018
and this amount is still in effect for 2019. This change was not part of the tax bill but
was increased due to inflation.
SEP-IRA Contribution Limits
The maximum contribution to a SEP-IRA account for 2018 is $55,000, and is $56,000 for 2019.
Qualified Dividends and Long-Term Capital Gains
The tax rate for taxpayers who have a marginal income tax rate of 37% on qualified dividends and long-term capital gains increased to 20% starting in 2013. This rate is still in effect for 2018 and 2019.
Qualified Business Income Deduction
The new tax bill contains a provision that may allow a deduction of up to 20% of business
income on the income tax return. This provision applies to Schedules C, E and F and
pass-through entities such as S corporations and partnerships. The determination of
businesses that qualify and the calculation of the deduction are very complex. The IRS has notyet issued final regulations regarding this provision.
Foreign Assets and Foreign Bank Accounts
The Treasury Department and the IRS require the reporting of foreign assets owned by United States citizens and residents. Additionally, there is a requirement to report bank account information when United States citizens and residents own or are signers on foreign bank accounts. The penalties for not reporting the required information by the due dates start at $10,000 and can be significantly higher. Be sure to inform us if you own foreign assets or are an owner or signer on foreign bank accounts.
Other Significant Changes Starting in 2018
– Standard deduction increased to $12,000 for single taxpayers and $24,000 for married filing joint taxpayers.
– Maximum combined itemized deduction for state income taxes and property taxes is $10,000.
– Loan limit for mortgage interest deduction is reduced to $750,000 – old limit was $1,000,000.
This change is effective for loans closed on or after December 15, 2017.
– No interest deduction for interest paid on Home Equity Lines of Credit (HELOC) unless the
monies were used for improvements.
– All miscellaneous itemized deductions are no longer deductible.
– Personal exemption deduction is eliminated.
– Increased child tax credit and increased refundable amount.
– Casualty loss deduction is eliminated except for losses occurring in Federal declared disaster areas.
There are many other changes due to the new tax bill. Please consult with us regarding how
the new bill affects your income taxes.
Please note that California has not yet conformed to these changes, and therefore the
old rules still apply for your California income tax return.