An Overview of the Tax Cuts & Jobs Act of 2017 Harlene Stevens, CPA November 29, 2018

The change in the standard deduction amounts will significantly reduce the number of taxpayers who will itemize. Doubling standard deduction to: $12,000 for singles $18,000 for head of household $24,000 for joint filers Fewer individuals will itemize The charitable giving deduction is only available to those who itemize Concern is a decrease in charitable giving

The changes to SALT will reduce the amount of allowable tax deductions for most donors. The state and local tax deduction is limited to $10,000 combined The mortgage interest deduction limit drops to $750,000 for new mortgage debt, $375,000 for married filing separately No home equity deduction unless used only for home improvements Eliminated itemized deductions Attorneys, accountants, advisory fees Moving expenses Personal casualty and theft Not all charitable giving is tax-motivated, however, less discretionary income could potentially reduce charitable donations

Example of Itemized Deductions New Tax Law Old Law New Law Medical - Taxes $37,756 $10,000 Mortgage Interest 5,700 Charity 6,000 TOTAL 49,456 21,700 Deduction Allowed $49,456 $24,000

Increases the charitable contribution deduction limit. Limits on cash donations increases from 50% to 60% of adjusted gross income Contributions exceeding 60% are generally allowed to be carried forward and deducted for up to 5 years Applies to public charities and certain foundations An incentive for high-income donors to give more to charity

The “Pease” limitation allowable deduction threshold is suspended. No limit to the amount of itemized charitable deductions Applies to higher-earning taxpayers who itemize their deductions Sunsets in 2025 Taxpayers can enjoy the full benefits of these deductions prompting them to continue their charitable giving

There is a reduction in the income tax rates for most individuals. Select few who fall into certain tax rate brackets may experience an increase – 33% to 35%. Single: $200K - $416K Married: $400K – 416K Charitable deductions could benefit certain taxpayers by pushing them into lower tax brackets

Unchanged Principal Residence Exclusion Capital Gains Rates Divorce Settlement agreement Spouse living in home Nonresident spouse Capital Gains Rates 15% lower bracket tax payers 20% highest bracket tax payers Net Investment Tax 3.8% levy on certain investment income $250,000 - married filing jointly or qualifying widow(er) $125,000 - married filing separately $200,000 – single filers

Other Personal Provisions Child Tax Credit Increases the child tax credit from $1,000 to $2,000, per qualifying child under age 17 (Expires after 2025) Refundable portion limited to $1,400 New credit for caring for non-child dependents: $500 Phase-out starts at: $200,000 for single filers, $400,000 for joint filers Current child and dependent care credit would continue Education Most education tax breaks remain the same, tuition and fees deduction remains expired No new contributions to Coverdell Education Savings Accounts (can roll into 529 plan); 529 plans can distribute up to $10,000 per year per student of elementary and secondary school expenses Higher education expenses include homeschool expenses State and Local Tax Deduction

Other Personal Provisions State and Local Tax Deduction Affordable Care Act Repeals the individual shared responsibility requirement starting in 2019 Alimony Repeals the deduction for alimony payments and their inclusion in the income of the recipient, effective 2019 Payor – no deduction for alimony Payee – not treated as income Medical Expenses Medical expenses: 7.5% of Adjusted Gross Income, down from 10% AMT Many people will no long be subject to the alternative minimum tax

Qualified Business Income or “Pass-through” Deduction Deduction on qualified business income Qualified business income (QBI) means the net amount of qualified items of income, gain, deduction, and loss with respect to the qualified trade or business of the taxpayer. Sole Proprietorship Partnership Single Member LLC S corporation

Qualified Business Income or “Pass-through” Deduction Deduction on qualified business income Limitations Taxable income level Below income threshold? $157,500 single filers and $315,000 married filing joint 20% deduction allowed Regardless of business type, wages, or unadjusted basis of assets Phase out $157,500 to $207,500 single filers $315,000 to $415,000 married filing jointly

Modifications to the Unrelated Business Income Tax (UBIT). Tax exempt organization with multiple unrelated businesses cannot offset losses between entities. Can carry forward losses to apply to the same entity Certain fringe benefits like parking and transportation apply as UBIT Organizations with UBIT, the corporate tax rate of 21% applies

Tax Planning Ideas Set up a charitable fund Defer as much as possible into a retirement plan Review business income with your CPA prior to year-end to see if you qualify for the new pass-through deduction Apply a “bunching strategy” to medical and charitable expenses If 70 ½ or older, make 2018 charitable donations via qualified charitable distributions from your IRA accounts If eligible in 2018, make a full year’s worth of deductible health savings account (HSA) contributions (subject to limitations) Make gifts sheltered by the annual gift tax exclusion by year- end if doing so may save gift and estate taxes - $15K per person

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