Last week, we discussed five specific changes that are occurring due to the passage of the 2017 Tax Cuts & Jobs Act. In this week’s post, we are continuing that theme and highlighting five other updates that are included in this tax reform. Our goal is to make you aware of the events and changes as part of this new law so you can continue being prudent in your business operations.
529 Savings Plans
The 529 savings plan is a savings account that promotes higher education investments by allowing a person to financially plan for higher education costs. This savings account has a tax advantage that permits you to invest money tax-free and use it for tuition, fees, and lodging. Under the previous laws, the money from a 529 savings plan could only be used on certain items and expenses related to college education. However, effective January 1st, 2018, you can use 529 savings for K-12 private schooling as well. Additionally, the tax benefits of the 529 plan savings are extended to qualified education expenses for elementary or secondary public and private schools. You also now have a withdrawal limit of 10,000 per child each year for eligible education-related expenses.
Alternative Minimum Tax
This tax, also known as the AMT, is imposed on higher-income taxpayer families and was designed to be calculated in addition to the regular income tax. There are a lot of details within the AMT, but basically, taxpayers in these income brackets determine both the AMT and the regular income tax then they pay whichever amount is higher. Under old tax law, the exemption amounts were 84,500 for married couples filing jointly, 54,300 for single tax filers, and 42,250 for married couples filing separately. The AMT exemption phase levels were 120,700 for single tax filers, 160,900 for married couples filing jointly, and 80,450 for married couples filing separately. But beginning January 1st, 2018, the exemption levels for the AMT start at 109,400 for married couples who are filing jointly and 70,300 for all other taxpayers (except estates and trusts). The new AMT exemption phase-out thresholds will be 1,000,000 for married couples filing jointly and 500,000 for all other taxpayers.
Using a bicycle for work commutes is a habit some people have begun to adopt as a health-conscious and environmentally-aware mode of transportation. Under the old tax laws, taxpayers could remove eligible bicycle expenses from their gross income up to an amount of $20 per month. With the passage of the tax overhaul, however, the exclusion has been suspended through 2025.
Reporting Gains from Home Sales
If you sold a home before December 31, 2017, you were able deduct 250,000 or 500,000 (if married filing jointly) of your resulting income if you had owned and lived primarily in that home at least two years before the sale. This exclusion was only able to be claimed once in a two year period. Now, you have to have lived in your house for at least five years before you sell your home. There are no changes to the deduction amounts of 250,000 and 500,000 for single or married taxpayers filing separately and married taxpayers filing jointly, respectively.
Under the previous tax laws, if you had paid out of your own pocket for medical expenses that totalled more than 10 percent of your AGI (or 7.5 percent, if you or your spouse were 65 or older), you could deduct that in your taxes. The new tax law allows all taxpayers to claim the medical expenses itemized deduction at a new threshold of 7.5 percent of your AGI. This new change applies to tax years beginning December 31, 2016 through January 1, 2019.
Once again, we have discussed more of the specific changes that are occurring as a result of the new tax law overhaul. As always, if you have any questions or concerns about how these new changes affect your taxes, feel free to contact MBS Accountancy! Our tax law experts and accountants are able to help you determine the best course of action for your unique situation and circumstances. Be sure to check back next week for our next post on the 2018 Tax Reform!