Tax Reform Bill: Details for Individual Taxpayers

Under the new tax reform bill, there are many changes that will affect most individual taxpayers. The most prominent changes include new tax brackets and rates and changes to popular deductions. Here is a review of some of the less conspicuous changes:

Changes of the New Tax Reform Bill Affecting Individuals

ACA Penalty

The new tax reform bill eliminates the penalty for individuals who are not covered by a qualified health plan beginning in 2019. The penalty will still apply in 2018. This change only affects individuals, not employers.

Changes to Kiddie Tax

These changes apply to earned and unearned income for children under age 19, or under age 24 for full-time students. Beginning with earnings in 2018 through 2025, income will be taxed using standard rates for single taxpayers. Unearned income tax will be calculated using rates for trusts and estates. The result should be easier calculations for this tax.

Casualty and Theft Deductions

The new tax reform bill eliminates casualty and theft loss deductions, unless the losses were due to a federally declared disaster. Deductions can also be claimed in cases when insurance payments are greater than the basis of the loss. In those cases, you can deduct losses up to the amount of the excess payment.

Itemized Deductions

Beginning in 2018 through 2025, income limits for itemized deductions have been eliminated. However, many of the deductions themselves have been changed, limited or eliminated. Here are a few more common deductions that have been eliminated:
Some forethought should also be given to how accounts are named. For example, “transportation” might be mistaken as an asset. Instead, “vehicle costs” might be a better description. Similarly, “sales tax expense” denotes a cost to the end user, not the construction firm. A better account name might be “sales tax payable” to convey the nature of the obligation. Account names should not be ambiguous. For example, instead of “discounts,” try using “sales discounts” for discounts given to customers and “purchase discounts” for discounts taken on supplier invoices. This delineation could prevent many costly mistakes.

  • Tax Related Expenses: Deductions for expenses and fees related to tax preparation, collection and refunds are eliminated.
  • Taxable Investments: Deductions for investment-related expenses and fees have been eliminated. These include, but are not limited to, advisory fees, clerical expenses, home office depreciation, and safe deposit box rentals.
  • Business Expenses: Most expenses related to work as an employee that are not reimbursed by the employer are no longer deductible. This includes, but is not limited to, travel expenses, passport fees, licensing expenses, subscriptions, tools and supplies, union dues, uniforms, and job search expenses.

Charitable Contributions

Beginning in 2018, the tax reform bill increases the amount of deductible charitable contributions to 60% of your AGI, up from 50% in previous years. The bill also eliminates deductions for alumni contributions that are related to the purchase of season tickets at college athletic events; previously, up to 80% of such contributions were deductible.

Gambling Expenses

Under the new laws, the total deductible gambling expenses and losses cannot exceed that year’s gambling winnings. Previously, such expenses as business expenses for professional gamblers were deductible and only losses were capped at the amount of winnings.

To learn more about how the new tax reform bill affects individual taxpayers, contact us at 702-870-7999 today!