What You Need to Know About the 2018 Tax Law ChangesSubmitted by Birchwood Financial Partners on June 20th, 2018
It is an interesting time if you’re a self-proclaimed tax geek, a challenging time if you’re a tax preparer, and undeniably a confusing time if you’re a consumer. One thing is for sure, almost everyone needs to know how the new federal tax law impacts them.
As a review, on December 22, 2017, a new federal tax bill was signed into law that will impact all taxpayers for their 2018 tax return. Then on May 23rd, a state tax law change was vetoed, which leaves Minnesotans with a different set of tax rules. Note that these federal tax law changes only last through 2025 at which time the tax laws revert to 2017 laws unless Congress votes to change this.
Here are the notable federal tax law changes:
- New lower tax brackets mean that many taxpayers will pay less federal taxes, but because of the loss of the personal exemption and other itemized deductions, the impact of lower tax rates will not be uniformly felt.
- The higher standard deduction amount means that many people who used to itemize deductions will now take the standard deduction. For some, this will be because the deduction for state and local taxes is now limited to $10,000 and virtually all miscellaneous deductions have been eliminated (think investment advisory fees, tax preparation fees, and business expense).
Initially you may think, "Great, I don’t have to keep track of my charitable contributions." BUT, not so fast. It is possible that in Minnesota you may still be able to file your itemized deductions as you did before. MPR, recently wrote about this in their article, "It's going to be a mess come tax season."
- No more personal exemptions.
- Higher child and family tax credit, and the income phase out has significantly increased.
- Alternative Minimum Tax goes away for almost everyone.
- Self-employed individuals and businesses may qualify for a special deduction of 20% of their business income. Everyone is still waiting for the specific rules on this as what has been published can be complex and confusing.
- The estate and gift tax exemption has increased to $11.2 million ($22.4 for couples). This means that you do not have to file a federal estate tax return if you die while this is in effect. Note that the Minnesota limit remains $2.4 million in 2018 so estate planning is still important. The annual gift tax exclusion is now $15,000.
What to do:
- Continue to keep track of your charitable gifts in case it is helpful for you on your state tax return.
- Consider creating a strategy for your charitable giving that might mean bunching two years of contributions into one year so you could itemize. Consider using a Donor Advised Fund, and if you’re over 70.5 years old, use your IRA for charitable giving.
- Contact your Financial Advisor or your Tax Preparer for questions on your specific situation.
- For more information about Federal law changes visit: irs.gov and for Minnesota law changes visit Minnesota Session Laws. To Review the Federal Tax Bill visit Tax Cuts and Jobs Act (TCJA)
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