Significant Changes for Personal Income Tax Returns

new-individual-tax-rateswritten by Michael Wirth

With a majority of the focus on revised lower individual and corporate tax rates, and the repatriation of off-shore corporate profits, it’s easy to lose sight of some significant changes that will affect your own personal income tax return: Deductions. Specifically, the standard deduction and itemized deductions claimed in arriving at taxable income. Below are some changes enacted under the Tax Cuts & Jobs Act.

Did you itemize in prior years? Will you continue to itemize under the new tax rules?

Most taxpayers claim the standard deduction, and it is anticipated that even more will claim the standard deduction as it will increase for 2018. The following chart details changes to the standard deduction.

Filing Status 

  • Single & Married Filing Separate: $6,350 (2017 Tax Year); $12,000 (Tax Years Beginning After 2017)*
  • Married Filing Joint & Surviving Spouse: $12,700 (2017 Tax Year); $24,000 (Tax Years Beginning After 2017)*
  • Head of Household: $9,350 (2017 Tax Year); $18,000 (Tax Years Beginning After 2017)*

*These updated standard deduction amounts will be indexed annually for inflation, and are currently set to expire after December 31, 2025.

If you believe you will continue to itemize, here are the changes that will affect you.

Medical and Dental Expenses
For tax years beginning after December 31, 2016, the Act reduces the medical expense deduction floor to 7.5% of adjusted gross income and eliminates the alternative minimum tax preference adjustment for medical and dental expenses.

State and Local Tax Deductions
Under the new tax bill, deductions for state and local sales, income and property taxes will remain in place. For tax years beginning after December 31, 2017, and before January 1, 2026, these deductions are capped at a maximum of $10,000.

Mortgage Interest Deduction
The Act reduces the mortgage interest deduction to interest on $750,000 of acquisition indebtedness interest for debt incurred after Dec. 15, 2017. The $1 million limitation remains for older debt. The deduction is not limited to interest on a taxpayer’s principal residence. For tax years beginning after Dec. 31, 2025, the limitation reverts back to $1,000,000 regardless of when the debt was incurred.

The Act also suspends the mortgage interest deduction for interest on home equity indebtedness for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026.

Charitable Contributions
The Act increases the adjusted gross income (AGI) limitation on cash contributions from 50% to 60%, effective for contributions made in tax years beginning after 2017 and before 2026.

In addition, the Act repeals the current 80% deduction for contributions made for university athletic seating rights. This is effective for contributions made in tax years beginning after 2017.

Effective beginning in 2017, the provision which allows for an exception to the substantiation rule for contributions of $250 or more if the donee organization files a return is repealed. What this means to you: If you’re claiming the donation as a deduction, you had better keep the receipt.

Personal Casualty Losses
The deduction for personal casualty and theft losses is repealed for the tax years 2018 through 2025 except for those losses attributable to federally-declared disasters.

Job Expenses and Miscellaneous Deductions subject to the 2% floor
The Act suspends all miscellaneous itemized deductions that are subject to the 2% floor under present law for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026. This includes deductions for unreimbursed employee expenses (examples include unreimbursed travel, mileage, tools, uniforms and other unreimbursed supplies) and tax preparation services.

Please note that the disallowance of these expenses is only in relation to itemized deductions on the Schedule A. Deductions taken for these items in other areas of your return remain unaffected.

Overall Limitation on Itemized Deductions
In prior years, taxpayers whose AGI exceeded certain threshold amounts, saw their itemized deductions reduced or “phased out” to a lesser allowable amount. The Act suspends this phase-out limitation for the 2018 through 2025 tax years.

If you have questions about your specific tax situation, or any other questions concerning the newly implemented tax law, please contact our office 417-881-0145.


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