Important Changes in 2018 Tax Law

February 27, 2018 | Craig Spears | Stuedle Spears & Co., PSC 

With the drastic changes to federal and state tax law, their maybe some uncertainty when it comes to filing 2018 tax returns.  Stay on top of your 2018 taxes with some of the important changes that came with the new law.

Business Changes

Federal

  • C corporate tax rates lower from the top corporate tax rate from 35% to 21%.
  • Section 179 depreciation deduction is increased to $1 million through 2022 with a phaseout threshold of $2,500,000.
  • Section 168 bonus depreciation is 100% of adjusted basis of qualifying property in the first year it is placed in service (for property placed in service after Sept. 27, 2017).
  • Net Operating Losses would generally not be eligible for carry-back. Any carryover can be used only to the extent of 80% of taxable income.  This applies to losses arising after 2017.  The carry-forward is indefinite.
  • Business meals are still 50% deductible for tax purposes.
  • Business entertainment (sporting events, golf, concerts, Churchill Downs, amusement or social purposes) is no longer deductible.
  • There may be a 20% of Qualified Business Income deduction available for partnerships, S corporations and sole proprietors.

Individuals

  • Personal exemptions are suspended from 2018 through 2025.
  • The standard deduction is available to taxpayers who do not itemize deductions. For 2018, this nearly doubled and will be:
    • $12,000 (single/married filing separate)
    • $18,000 (head of household)
    • $24,000 (married filing jointly)
  • The standard mileage rates for 2018 are:
    • Business – 54.5 cents per mile
    • Medical and Moving – 18 cents per mile
    • Charitable Services – 14 cents per mile
  • Child Tax Credit increases to $2,000 per qualifying child under the age of 17. An additional $500 nonrefundable credit is available for each dependent who is not a qualifying child.
  • American Opportunity Credit (credit for college expenses) increases to a $2,500 per-year maximum.
  • Lifetime Learning Credit is 20% of up to $10,000 of qualified tuition and related expenses.
  • The maximum 401(k) plan elective deferral is $18,500 (plus $6,000 catch-up for age 50+).
  • IRA contribution limit is $5,500 (plus $1,000 catch-up for age 50+).
  • Roth IRA contribution limit is $5,500 (plus $1,000 catch-up for age 50+).

Kentucky Changes

Business

  • Corporate and pass through entities tax rates are reduced to a flat rate of 5%.
  • Adopted the 80% federal NOL limitation and unlimited carry forward for NOL generated after January 1, 2018.
  • If gross receipts exceed $1,000,000 you must electronically file the tax return.
  • A non-refundable and non-transferrable income tax credit for property tax paid on inventory will be phased in over four years starting January 1, 2018.
  • Kentucky has NOT adopted the following federal changes:
    • The 100% full depreciation expensing, KY Sec 179 limit remains at $25,000.
    • The deduction for the new qualified business income for pass through entities.

Individuals

  • The previous tax rate of 6% taxable income over $8,000 has been replaced with a flat 5% tax rate.
  • Kentucky eliminated nearly all itemized deductions, with the exception of: Home Mortgage interest, points and mortgage insurance, and charitable contributions. You can no longer deduct the following as itemized deductions:
    • Medical expenses or insurance, including long term care insurance
    • Investment interest
    • Taxes (real estate, income, etc.)
    • Casualty or theft losses.
    • Gambling losses
    • Moving expenses
    • Miscellaneous expenses subject to a 2% floor
  • Pension exclusions were decreased from $41,110 to $31,110. Note – you can still fully exclude Social Security and your pensions from the federal government and Kentucky or local government if attributable to service performed prior to January 1, 1998.

Hopefully these tips will help clear the air and make you more confident when it comes time to file your 2018 taxes.  If problems still arise, don’t hesitate to call us at 502-491-5253 or come see us at Stuedle, Spears, and Company.  Located at 2821 S Hurstbourne Parkway, we have experienced and knowledgeable CPA’s that can help with all your business and individual tax needs.

«
»