Summer 2018 Tax News
Tax season officially ended on April 16, but taxes haven't gone away! With the new tax law, which was enacted in December 2017, most taxpayers will be affected. As a result, tax planning is especially important this year. Some of you may want to consider changing your witholdings and others may need to review their estimated tax payments. What follows is a summary of the changes that resulted from the Tax Cuts and Jobs Act of 2017, as well as other tax changes that you may want to be aware of.
OVERSEAS VOLUNTARY DISCLOSURE PROGRAM (OVDP)
U.S. taxpayers who have undisclosed financial assets outside the U.S. should be aware that the OVDP will be closing on September 28, 2018.
The OVDP allows U.S. taxpayers to disclose their previously undisclosed foreign income, accounts, or assets while being sure that they will not face criminal prosecution. Since the OVDP was established in 2009, over 56,000 US taxpayers have paid billions of dollars in back taxes, interest, and penalties through the program. Although the program is closing, the IRS will continue to seek U.S. taxpayers who have undisclosed overseas assets; without the OVDP, taxpayers who keep their foreign accounts hidden may be subject to criminal prosecution.
The IRS is aggressive in its pursuit of hidden foreign bank accounts and has been effective at publicizing the requirement for U.S. to report foreign bank accounts. Form 114 (FBAR or Report of Foreign Bank and Financial Accounts) has been made widely available. To avoid FBAR related penalties (up to $129,210) for past year with unreported foreign accounts, taxpayers should take the opportunity to report their accounts under the OVDP before September 28.
TAX CUTS AND JOBS ACT
On Dec, 22, 2017, The Tax Cuts and Jobs Act (TCJA) was signed into law, the first major tax reform in 31 years. The new law makes many changes to the tax code. Every taxpayer will be impacted.
Below are some highlights of the changes:
The tax rates for all tax brackets have been reduced. The top tax rate, for example, has been reduced from 39.6% to 37%.
Exemptions and the child tax credit:
The deduction for personal exemptions has been eliminated. An expanded child tax credit is meant to help make up for the loss of personal exemptions for some families. The child tax credit has been increased to $2,000 (from $1,000) for qualifying children under 17. For children 17 and older and for other dependents, the credit is $500.
The new tax law doubled the standard deduction. The higher standard deduction ($12,000 for singles, $18,000 for heads of household, and $24,000 for married couples filing jointly) means that fewer taxpayers will benefit from itemizing their deductions.
Itemized deductions for all state and local taxes, including property taxes, have been capped at $10,000 per year. The limit on mortgage debt for purposes of the mortgage interest deduction has been reduced from $1,000,000 to $750,000 for any loan made after December 15, 2017. Loans made before December 15, 2017 will be grandfathered and interest on these loans will still deductible, up to the $1,000,000 principal limit. The interest on home equity borrowing will no longer be deductible. Additional changes have been made to deductions that previously fell under the "miscellaneous deductions" category.
The new tax reform law eliminates the alimony deduction for agreements signed after December 31, 2018. Alimony income will not be taxable for agreements signed after December 31. 2018. However, there is no change to the law for agreements signed before Jan. 1, 2019.
The new law has eliminated the moving expense deduction and makes employer reimbursements of moving expenses taxable to the employee, beginning in 2018.
Alternative Minimum Tax:
The new law temporarily increases the amount of income that is exempt from alternative minimum tax (AMT) for tax years 2018 through 2026. This increase in income exempt from AMT means that fewer people will be subject to AMT under the new law.
The new law modifies Section 529 (qualified tuition) plans. In addition to paying for college, funds in your 529 plan can now be used to pay for grades K to 12 private school tuition.
The above are just a few of the changes included in the Tax Cuts and Jobs Act. Your 2018 taxes will be affected. The degree of impact depends on your personal situation.
Please call me if you have any questions and to optimize your 2018 tax situation!
Adele Gershater, CPA