With all of the changes that the new tax bill has brought about, it leaves many people uncertain as to how to start planning for the 2018 tax year. With uncertainty brings the ability to take a fresh look at your current situation. It brings the ability to stay ahead of change and start planning for the future. The ability to meet your goal of having a secure financial future.
At DKB we want all of our clients to achieve goals that are important to them, so we are staying ahead of changes that the new Tax Bill has thrown our way. Below are key tax and financial planning numbers that individuals need to be aware of when starting to plan for 2018.
- 401(k), 403(b), 457 PLANS DEFERRAL – $18,500 (up from $18,000 in 2017. Was actually stuck at $18K the past 3 years.)
- Can make changes to deferral election throughout year
- CATCH UP CONTRIBUTIONS FOR 50+ – remain the same at $6,000
- Can start catch-up now even if you turn 50 on December 31st
- IRA CONTRIBUTIONS – remain the same / $5,500 (additional $1,000 for 50 and over)
- SEP IRA – $55,000 (up from $54,000 in 2017)
- SIMPLE IRA – unchanged ($12,500 contribution limit and $3,000 catch-up)
- HEALTH SAVINGS ACCOUNT
- Single – $3,450 (up from $3,400 in 2017)
- Family – $6,900 (up from $6,750 in 2017)
- Also an additional $1,000 contribution for those 55 and over
- FICA LIMIT – $128,400 (up from $127,200 in 2017)
- This is the amount of wages you pay the 6.2% Social Security tax on before you hit the max and no longer pay this tax
- NEW HOMEOWNERS
- Mortgage interest deduction only allowed on new home loans under $750K (used to be $1 million)
- Existing home loans are grandfathered in
- Home Equity indebtedness no longer allowed as a deduction
- Mortgage interest deduction only allowed on new home loans under $750K (used to be $1 million)
- STATE & LOCAL INCOME TAXES / REAL ESTATE TAXES – Allowable deduction is now only $10,000
- CHARITABLE CONTRIBUTIONS
- Cash contributions deductible up to 60% of AGI (up from 50% in the past)
- MEDICAL EXPENSES – Must exceed 7.5% of AGI
- STANDARD DEDUCTION
- Individual – $12,000
- Married Filing Joint – $24,000
- Many taxpayers will now take standard deduction instead of itemizing
- PERSONAL EXEMPTIONS
- Eliminated
- CHILD TAX CREDIT
- Credit increases from $1,000 to $2,000 per qualifying child
- Refundable amount also higher
- Income thresholds are much higher
- $200K for individuals and $400K for MFJ
- Credit increases from $1,000 to $2,000 per qualifying child
- 529 PLAN DISTRIBUTIONS can now be used for qualified expenses for elementary school and high school
- $10,000 per child
- College tuition rules have not changed (can take a distribution for the amount of qualified expenses)
- DIVORCE
- Alimony paid will no longer be a deduction and alimony received will no longer be income for divorce agreements executed after 12/31/18
- Current divorce decrees will not apply (still get deduction or pick up as income)
- ROTH IRA
- Can no longer re-characterize a Roth conversion
- 2017 Roth conversions can still be re-characterized up until 10/15/2018
- ESTATE PLANNING
- Exclusion doubles
- Higher exemption sunsets in 2025
- Still allowed a step-up in basis
As you can see tax reform changed a lot of key numbers that were previously used for tax and financial planning. It is important to be aware of the new tax law and how to use it to benefit your unique situation. As every situation is different it requires different analysis and planning. To learn how you can benefit from the new Tax Bill contact a member of our personal tax or financial planning team today.
