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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. Up Next: Damien Paumi

16. Thank You