The 2018 income tax brackets and the new tax rates will produce lower federal income taxes and increase “take home” pay for most taxpayers.
The IRS has issued new Withholding Tables that employers must use beginning no later that February 15, 2018; sooner if they can. The new tables are designed to work with EXISTING employee withholding allowances, so there is no need for you to file a new W-4 form if it is current and your circumstances have not changed. Keep an eye on the “Net Pay” number of your pay stub as we progress through January and February.
Deductions: Some in, Some out
Medical expenses that exceed 7.5% (not the old threshold of 10% of adjusted gross income.
State & Local taxes now have a cap of $10,000 applied to one or both taxes paid in the tax year, (prepaying local taxes that have not been assessed doesn’t qualify.
Home Mortgage Interest is still deductible on first and second homes. However the amount of interest is limited to “Qualified Indebtedness” of less than $750,000. Home Equity Loan interest is no longer deductible.
Qualified Cash Charitable Contributions may be deducted up to 60%. There are sticky rules covering all other types of contributions; clothing, furniture, household goods (the Blue Goodwill Receipts and other receipts must state item, date and fair value of donation). Donations where you receive some benefit in return are generally non-deductible. If you have any questions, call me as and those rules are too complicated to deliver here.
Other Deductions are gone. No more: accountant fees, casualty losses, expenses for production of income, unreimbursed business expenses, moving expenses. Gambling losses and expenses are limited to gambling winnings.
NEXT TIME: MORE TAX CREDITS
In the Weeds
Remember the days of the “three Martini” lunch? Those went bye-bye when the business tax deduction was reduced to 50% of the amount spent. Congress has figured that in order to pay for the fancy new corporate tax rate of 21%, it would totally eliminate any deduction for entertainment and “executive perks.” No more deductions for company-owned vehicles used solely by an employee, no more country club dues, athletic fees and the like. That might hurt small businesses, but it is not likely that Zuckerberg or Tim Cook will give up their perks anytime soon.