Tax Cuts and Jobs Act: Impact on Individuals

January 3, 2018 By SeaCure Advisors Leave a Comment

tax cuts individual impact On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, a sweeping $1.5 trillion tax-cut package that fundamentally changes the individual and business tax landscape. While many of the provisions in the new legislation are permanent, others (including most of the tax cuts that apply to individuals) will expire in eight years. Some of the major changes included in the legislation that affect individuals are summarized below; unless otherwise noted, the provisions are effective for tax years 2018 through 2025.

Individual income tax rates

The legislation replaces most of the seven current marginal income tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with corresponding lower rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The legislation also establishes new marginal income tax brackets for estates and trusts, and replaces existing “kiddie tax” provisions (under which a child’s unearned income is taxed at his or her parents’ tax rate) by effectively taxing a child’s unearned income using the estate and trust rates.

Single
If taxable income is:	Then income tax equals:
Not over $9,525	10% of the taxable income
Over $9,525 but not over $38,700	$952.50 plus 12% of the excess over $9,525
Over $38,700 but not over $82,500	$4,453.50 plus 22% of the excess over $38,700
Over $82,500 but not over $157,500	$14,089.50 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000	$32,089.50 plus 32% of the excess over $157,500
Over $200,000 but not over $500,000	$45,689.50 plus 35% of the excess over $200,000
Over $500,000	$150,689.50 plus 37% of the excess over $500,000

Head of Household
If taxable income is:	Then income tax equals:
Not over $13,600	10% of the taxable income
Over $13,600 but not over $51,800	$1,360 plus 12% of the excess over $13,600
Over $51,800 but not over $82,500	$5,944 plus 22% of the excess over $51,800
Over $82,500 but not over $157,500	$12,698 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000	$30,698 plus 32% of the excess over $157,500
Over $200,000 but not over $500,000	$44,298 plus 35% of the excess over $200,000
Over $500,000	$149,298 plus 37% of the excess over $500,000

Married Individuals Filing Joint Returns
If taxable income is:	Then income tax equals:
Not over $19,050	10% of the taxable income
Over $19,050 but not over $77,400	$1,905 plus 12% of the excess over $19,050
Over $77,400 but not over $165,000	$8,907 plus 22% of the excess over $77,400
Over $165,000 but not over $315,000	$28,179 plus 24% of the excess over $165,000
Over $315,000 but not over $400,000	$64,179 plus 32% of the excess over $315,000
Over $400,000 but not over $600,000	$91,379 plus 35% of the excess over $400,000
Over $600,000	$161,379 plus 37% of the excess over $600,000

Married Individuals Filing Separate Returns
If taxable income is:	Then income tax equals:
Not over $9,525	10% of the taxable income
Over $9,525 but not over $38,700	$952.50 plus 12% of the excess over $9,525
Over $38,700 but not over $82,500	$4,453.50 plus 22% of the excess over $38,700
Over $82,500 but not over $157,500	$14,089.50 plus 24% of the excess over $82,500
Over $157,500 but not over $200,000	$32,089.50 plus 32% of the excess over $157,500
Over $200,000 but not over $300,000	$45,689.50 plus 35% of the excess over $200,000
Over $300,000	$80,689.50 plus 37% of the excess over $300,000

Standard deduction and personal exemptions

The legislation roughly doubles existing standard deduction amounts, but repeals the deduction for personal exemptions. Additional standard deduction amounts allowed for the elderly and the blind are not affected by the legislation and will remain available for those who qualify. Higher standard deduction amounts will generally mean that fewer taxpayers will itemize deductions going forward.

2018 Standard Deduction Amounts

Filing Status	Before Tax Cuts and Jobs Act	After Tax Cuts and Jobs Act
Single or Married Filing Separately	$6,500	$12,000
Head of Household	$9,550	$18,000
Married Filing Jointly	$13,000	$24,000

Itemized deductions

The overall limit on itemized deductions that applied to higher-income taxpayers (commonly known as the “Pease limitation”) is repealed, and the following changes are made to individual deductions:

State and local taxes — Individuals are only able to claim an itemized deduction of up to $10,000 ($5,000 if married filing a separate return) for state and local property taxes and state and local income taxes (or sales taxes in lieu of income).
Home mortgage interest deduction — Individuals can deduct mortgage interest on no more than $750,000 ($375,000 for married individuals filing separately) of qualifying mortgage debt. For mortgage debt incurred prior to December 16, 2017, the prior $1 million limit will continue to apply. No deduction is allowed for interest on home equity indebtedness.
Medical expenses — The adjusted gross income (AGI) threshold for deducting unreimbursed medical expenses is retroactively reduced from 10% to 7.5% for tax years 2017 and 2018, after which it returns to 10%. The 7.5% AGI threshold applies for purposes of calculating the alternative minimum tax (AMT) for the two years as well.
Charitable contributions — The top adjusted gross income (AGI) limitation percentage that applies to deducting certain cash gifts is increased from 50% to 60%.
Casualty and theft losses — The deduction for personal casualty and theft losses is eliminated, except for casualty losses suffered in a federal disaster area.
Miscellaneous itemized deductions — Miscellaneous itemized deductions that would be subject to the 2% AGI threshold, including tax-preparation expenses and unreimbursed employee business expenses, are no longer deductible.

Child tax credit

The child tax credit is doubled from $1,000 to $2,000 for each qualifying child under the age of 17. The maximum amount of the credit that may be refunded is $1,400 per qualifying child, and the earned income threshold for refundability falls from $3,000 to $2,500 (allowing those with lower earned incomes to receive more of the refundable credit). The income level at which the credit begins to phase out is significantly increased to $400,000 for married couples filing jointly and $200,000 for all other filers. The credit will not be allowed unless a Social Security number is provided for each qualifying child.

A new $500 nonrefundable credit is available for qualifying dependents who are not qualifying children under age 17.

Alternative minimum tax (AMT)

The AMT is essentially a separate, parallel federal income tax system with its own rates and rules — for example, the AMT effectively disallows a number of itemized deductions, as well as the standard deduction. The legislation significantly narrows the application of the AMT by increasing AMT exemption amounts and dramatically increasing the income threshold at which the exemptions begin to phase out.

2018 AMT Exemption Amounts

Filing Status	Before Tax Cuts and Jobs Act	After Tax Cuts and Jobs Act
Single or Head of Household	$55,400	$70,300
Married Filing Jointly	$86,200	$109,400
Married Filing Separately	$43,100	$54,700

2018 AMT Exemption Phaseout Thresholds

Filing Status	Before Tax Cuts and Jobs Act	After Tax Cuts and Jobs Act
Single or Head of Household	$123,100	$500,000
Married Filing Jointly	$164,100	$1,000,000
Married Filing Separately	$82,050	$500,000

Other noteworthy changes

The Affordable Care Act individual responsibility payment (the penalty for failing to have adequate health insurance coverage) is permanently repealed starting in 2019.
Application of the federal estate and gift tax is narrowed by doubling the estate and gift tax exemption amount to about $11.2 million in 2018, with inflation adjustments in following years.
In a permanent change that starts in 2018, Roth conversions cannot be reversed by recharacterizing the conversion as a traditional IRA contribution by the return due date.
For divorce or separation agreements executed after December 31, 2018 (or modified after that date to specifically apply this provision), alimony and separate maintenance payments are not deductible by the paying spouse, and are not included in the income of the recipient. This is also a permanent change.

For another overview of the new tax laws, please read our blog post here.

Tax Cuts And Jobs Act

December 27, 2017 By SeaCure Advisors 1 Comment

The Tax Cuts and Jobs Act legislation has been passed by Congress and awaits the president’s signature. The Act makes extensive changes that affect both individuals and businesses. Some key provisions of the Act are discussed below. Most provisions are effective for 2018. Many individual tax provisions sunset and revert to pre-existing law after 2025; the corporate tax rates provision is made permanent. Comparisons below are generally for 2018.

Individual income tax rates

Pre-existing law. There were seven regular income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

New law. There are seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These provisions sunset and revert to pre-existing law after 2025.

Income Bracket Thresholds
Tax Rate	Single	Married Filing Jointly/ Surviving Spouse	Married Filing Separately	Head of Household	Trust/Estate
10%	$0	$0	$0	$0	$0
12%	$9,525	$19,050	$9,525	$13,600	N/A
22%	$38,700	$77,400	$38,700	$51,800	N/A
24%	$82,500	$165,000	$82,500	$82,500	$2,550
32%	$157,500	$315,000	$157,500	$157,500	N/A
35%	$200,000	$400,000	$200,000	$200,000	$9,150
37%	$500,000	$600,000	$300,000	$500,000	$12,500

Standard deduction, itemized deductions, and personal exemptions

Pre-existing law. In general, personal (and dependency) exemptions were available for you, your spouse, and your dependents. Personal exemptions were phased out for those with higher adjusted gross incomes.

You could generally choose to take the standard deduction or to itemize deductions. Additional standard deduction amounts were available if you were blind or age 65 or older.

Itemized deductions included deductions for: medical expenses, state and local taxes, home mortgage interest, investment interest, charitable gifts, casualty and theft losses, job expenses and certain miscellaneous deductions, and other miscellaneous deductions. There was an overall limitation on itemized deductions based on the amount of your adjusted gross income.

New law. The standard deduction is significantly increased, and the additional standard deduction amounts for those over age 65 or blind are still available. The personal and dependency exemptions are no longer available.

Many itemized deductions are eliminated or restricted. The overall limitation on itemized deductions based on the amount of your adjusted gross income is eliminated.

• The 10% of AGI floor for the deduction of medical expenses is reduced to 7.5% in 2017 and 2018 (for regular tax and alternative minimum tax).

• The deduction for state and local taxes is limited to $10,000. An individual cannot prepay 2018 income taxes in 2017 in order to avoid the dollar limitation in 2018.

• The deduction for mortgage interest is still available, but the benefit is reduced for some individuals, and interest on home equity loans is no longer deductible.

• The charitable deduction is still available, but modified.

• The deduction for personal casualty losses is eliminated unless the loss is incurred in a federally declared disaster.

These provisions sunset and revert to pre-existing law after 2025.

Standard deduction, itemized deductions, and personal exemptions

Personal and Dependency Exemptions (you, your spouse, and dependents)
	Pre-existing law	New law
Exemption	$4,150	No personal exemption

Standard Deduction
	Pre-existing law	New law
Married filing jointly	$13,000	$24,000
Head of household	$9,550	$18,000
Single/married filing separately	$6,500	$12,000
Additional aged/blind
Single/head of household	$1,600	$1,600
All other filing statuses	$1,300	$1,300

Itemized Deductions
	Pre-existing law	New law
Medical expenses	Yes, to extent expenses exceed 10% of AGI floor	Yes, 10% AGI floor reduced to 7.5% for 2017 and 2018
State and local taxes	Yes, income (or sales) tax, real property tax, personal property tax	Yes, limited to $10,000 ($5,000 for married filing separately)
Home mortgage interest	Yes, limited to $1,000,000 ($100,000 for home equity loan), one-half those amounts for married filing separately	Yes, limited to $750,000 ($375,000 for married filing separately), no home equity loan; the $1,000,000/$500,000 limit still applies to debt incurred before December 16, 2017
Charitable gifts	Yes	Yes, 50% AGI limit raised to 60% for certain cash gifts
Casualty and theft losses	Yes	Federally declared disasters only
Job expenses and certain miscellaneous deductions	Yes	No

Child tax credit

Pre-existing law. The maximum child tax credit was $1,000. The child tax credit was phased out if modified adjusted gross income exceeded certain amounts. If the credit exceeded the tax liability, the child tax credit was refundable up to 15% of the amount of earned income in excess of $3,000 (the earned income threshold).

New law. The maximum child tax credit is increased to $2,000. A nonrefundable credit of $500 is available for qualifying dependents other than qualifying children. The maximum refundable amount of the credit is $1,400, indexed for inflation. The amount at which the credit begins to phase out is increased, and the earned income threshold is lowered to $2,500. The changes to the credit sunset and revert to pre-existing law after 2025.

Child Tax Credit
	Pre-existing law	New law
Maximum credit	$1,000	$2,000
Non-child dependents	N/A	$500
Maximum refundable	$1,000	$1,400 indexed
Refundable earned income threshold	$3,000	$2,500
*Credit phaseout threshold*
Single/head of household	$75,000	$200,000
Married filing jointly	$110,000	$400,000
Married filing separately	$55,000	$200,000

Alternative minimum tax (AMT)

Under the Act, the alternative minimum tax exemptions and exemption phaseout thresholds are increased. The AMT changes sunset and revert to pre-existing law after 2025.

Alternative Minimum Tax (AMT)
	Pre-existing law	New law
Maximum AMT exemption amount	$86,200 (MFJ), $55,400 (Single/HOH), $43,100 (MFS)	$109,400 (MFJ), $70,300 (Single/HOH), $54,700 (MFS)
Exemption phaseout threshold	$164,100 (MFJ), $123,100 (Single/HOH), $82,050 (MFS)	$1,000,000 (MFJ), $500,000 (Single, HOH, MFS)
26% rate applies to AMT income (AMTI) at or below this amount (28% rate applies to AMTI above this amount)	$191,500 (MFJ, Single, HOH), $95,750 (MFS)	$191,500 (MFJ, Single, HOH), $95,750 (MFS)

Kiddie tax

Instead of taxing most unearned income of children at their parents’ tax rates (as under pre-existing law), the Act taxes children’s unearned income using the trust and estate income tax brackets. This provision sunsets and reverts to pre-existing law after 2025.

Corporate tax rates

Under the Act, corporate income is taxed at a 21% rate. The corporate alternative minimum tax is repealed.

Special provisions for business income of individuals

Under the Act, an individual taxpayer can deduct 20% of domestic qualified business income (excludes compensation) from a partnership, S corporation, or sole proprietorship. The benefit of the deduction is phased out for specified service businesses with taxable income exceeding $157,500 ($315,000 for married filing jointly). The deduction is limited to the greater of (1) 50% of the W-2 wages of the taxpayer, or (2) the sum of (a) 25% of the W-2 wages of the taxpayer, plus (b) 2.5% of the unadjusted basis immediately after acquisition of all qualified property (certain depreciable property). This limit does not apply if taxable income does not exceed $157,500 ($315,000 for married filing jointly), and the limit is phased in for taxable income above those thresholds. This provision sunsets and reverts to pre-existing law after 2025.

Retirement plans

Under the Act, the contribution levels for retirement plans remain the same. However, the Act repeals the special rule permitting a recharacterization to unwind a Roth conversion.

Estate, gift, and generation-skipping transfer tax

The Act doubles the gift and estate tax basic exclusion amount and the generation-skipping transfer tax exemption to about $11,200,000 in 2018. This provision sunsets and reverts to pre-existing law after 2025.

Health insurance individual mandate

The Act eliminates the requirement that individuals must be covered by a health care plan that provides at least minimum essential coverage or pay a penalty tax (the individual shared responsibility payment) for failure to maintain the coverage. The provision is effective for months beginning after December 31, 2018.

To read the complete act, you can do so on the government’s website here.

If you have any questions, please contact us.

Proposed Tax Reform Legislation

November 29, 2017 By SeaCure Advisors Leave a Comment

Note: On November 16, 2017, the House passed its version of the Tax Cuts and Jobs Act. On that same day, the Senate Finance Committee approved its version; it can now be considered by the full Senate. If the Senate approves its version, the House and Senate would then need to reconcile the two versions.

On November 2, 2017, House Republicans released their comprehensive tax reform plan, the Tax Cuts and Jobs Act. Then, on November 9, 2017, Senate Republicans released their own plan. The two plans have much in common, but also have significant differences. Some key provisions of these tax proposals are discussed below. Of course, provisions may change as the legislation winds its way through Congress. Most provisions, if enacted, would be effective for 2018. Comparisons below are generally for 2018.

Individual income tax rates

Current law. There are seven regular income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. House proposal. The seven tax brackets would be reduced to four: 12%, 25%, 35%, and 39.6%.

Income Bracket Thresholds
Tax Rate	Single	Married Filing Jointly/ Surviving Spouse	Married Filing Separately	Head of Household	Trust/Estate
12%	$0	$0	$0	$0	$0
25%	$45,000	$90,000	$45,000	$67,500	$2,550
35%	$200,000	$260,000	$130,000	$200,000	$9,150
39.6%	$500,000	$1,000,000	$500,000	$500,000	$12,500

In addition, the benefit of the 12% rate would be recaptured by an additional tax if adjusted gross income (AGI) exceeds $1,000,000 ($1,200,000 for married filing jointly and surviving spouses).

Senate proposal. There would be seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%.

Income Bracket Thresholds
Tax Rate	Single	Married Filing Jointly/ Surviving Spouse	Married Filing Separately	Head of Household	Trust/Estate
10%	$0	$0	$0	$0	$0
12%	$9,525	$19,050	$9,525	$13,600	N/A
22%	$38,700	$77,400	$38,700	$51,800	N/A
24%	$70,000	$140,000	$70,000	$70,000	$2,550
32%	$160,000	$320,000	$160,000	$160,000	N/A
35%	$200,000	$400,000	$200,000	$200,000	$9,150
38.5%	$500,000	$1,000,000	$500,000	$500,000	$12,500

Standard deduction, itemized deductions, and personal exemptions

Current law. In general, personal (and dependency) exemptions are available for you, your spouse, and your dependents. Personal exemptions may be phased out based on the amount of your adjusted gross income.

You can generally choose to take the standard deduction or to itemize deductions. Additional standard deduction amounts are available if you are blind or age 65 or older.

Itemized deductions include deductions for: medical expenses, state and local taxes, home mortgage interest, investment interest, charitable gifts, casualty and theft losses, job expenses and certain miscellaneous deductions, and other miscellaneous deductions. There is an overall limitation on itemized deductions based on the amount of your adjusted gross income.

House proposal. The standard deduction would be significantly increased, but personal and dependency exemptions would no longer be available, and additional standard deduction amounts for the blind and those over age 65 would no longer be available.

Most itemized deductions would be eliminated (or restricted).

The deduction for mortgage interest would still be available, but the benefit would be reduced for some individuals, and interest on home equity loans would no longer be deductible.
The deduction for state and local taxes would be limited to $10,000 of real property taxes (income taxes, sales taxes, and personal property taxes would not be deductible).
The deduction for personal casualty losses would be eliminated, except for previously granted relief for qualified victims of Hurricanes Harvey, Irma, and Maria.
The charitable deduction would still be available, but modified.
Senate proposal. The standard deduction would be significantly increased, and the additional standard deduction amounts for those over age 65 or blind would still be available. The personal and dependency exemptions would no longer be available.
Most itemized deductions would be eliminated (or restricted).
The deduction for mortgage interest would still be available, but not for home equity loans.
The deduction for all state and local taxes would be eliminated.
The deduction for personal casualty losses would be eliminated unless the loss was incurred in a federally declared disaster.
The charitable deduction would still be available, but modified.
Standard deduction, itemized deductions, and personal exemptions

Personal and Dependency Exemptions (you, your spouse, and dependents)
	Current law	House proposal	Senate proposal
Exemption	$4,150	No personal exemption	No personal exemption

Standard Deduction
	Current law	House proposal	Senate proposal
Married filing jointly	$13,000	$24,400	$24,000
Head of household	$9,550	$18,300	$18,000
Single/married filing separately	$6,500	$12,200	$12,000
Additional aged/blind
Single/head of household	$1,550	Not available	$1,550
All other filing statuses	$1,250	Not available	$1,250

Itemized Deductions
	Current law	House proposal	Senate proposal
Medical expenses	Yes	No	No
State and local taxes	Yes, income (or sales) tax, real property tax, personal property tax	$10,000 of real property tax only	No
Home mortgage interest	Yes, limited to $1,000,000 ($100,000 for home equity loan)	Yes, limited to $500,000, principal residence only, and no home equity loan	Yes, but no home equity loan
Investment interest	Yes	No	No
Charitable gifts	Yes	Yes, 50% AGI limit raised to 60% for certain cash gifts	Yes, 50% AGI limit raised to 60% for certain cash gifts
Casualty and theft losses	Yes	No, but continued relief for qualified victims of Hurricanes Harvey, Irma, and Maria	Federally declared disasters only
Job expenses and certain miscellaneous deductions	Yes	No	No
Other miscellaneous deductions	Yes	No	No

Child tax credit and new family tax credit

Current law. The maximum child tax credit is $1,000. The child tax credit is phased out if modified adjusted gross income exceeds certain amounts. If the credit exceeds the tax liability, the child tax credit is refundable up to 15% of the amount of earned income in excess of $3,000 (the earned income threshold).

House proposal. The maximum child tax credit would be increased to $1,600. A credit of $300 would be available for non-child dependents. In addition, a family flexibility credit of $300 would be available for a qualifying individual who is neither a child nor a non-child dependent. The maximum refundable amount of the credit would be $1,000, indexed for inflation. The amount at which the credit begins to phase out would be increased.

Senate proposal. The maximum child tax credit would be increased to $2,000. A nonrefundable credit of $500 would be available for non-child dependents. The maximum refundable amount of the credit would be $1,000, indexed for inflation. The amount at which the credit begins to phase out would be increased, and the earned income threshold would be lowered to $2,500.

Child Tax Credit
	Current law	House proposal	Senate proposal
Maximum credit	$1,000	$1,600	$2,000
Non-child dependents	N/A	$300	$500
Family flexibility	N/A	$300	N/A
Maximum refundable	$1,000	$1,000 indexed	$1,000 indexed
Refundable earned income threshold	$3,000	$3,000	$2,500
Credit phaseout threshold
Single/head of household	$75,000	$115,000	$500,000
Married filing jointly	$110,000	$230,000	$500,000
Married filing separately	$55,000	$115,000	$500,000

Alternative minimum tax

Under both the House and Senate plans, the alternative minimum tax would be eliminated.

Kiddie tax

Instead of taxing most unearned income of children at their parents’ tax rates, both the House and Senate plans would tax children’s unearned income using the trust and estate income tax brackets.

Corporate tax rates

Under both the House and Senate plans, corporate income would be taxed at a 20% rate. The House plan would make this effective starting in 2018. The Senate plan, however, would delay implementation to 2019.

Special provisions for business income of individuals

House proposal. A portion of the net income distributed by a pass-through entity (e.g., a partnership or S corporation) to an owner or shareholder would be taxed at a maximum rate of 25%. Wages and payments for services would be taxed at ordinary individual income tax rates.

Senate proposal. An individual taxpayer would be able to deduct 17.4% of domestic qualified business income (excludes compensation) from a partnership, S corporation, or sole proprietorship. The benefit of the deduction would be phased out for specified service businesses with taxable income exceeding $250,000 ($500,000 for married filing jointly). The deduction would be limited to 50% of the W-2 wages of the taxpayer. The W-2 wage limit would not apply if taxable income does not exceed $250,000 ($500,000 for married filing jointly), and the limit would be phased in for taxable income above those thresholds.

Retirement plans

Under both the House and Senate plans, the contribution levels for retirement plans would remain the same. However, it would no longer be permissible to recharacterize (or undo) a contribution or conversion to a Roth IRA.

Estate, gift, and generation-skipping transfer tax

House proposal. The gift and estate tax basic exclusion amount would be doubled to about $11,200,000 in 2018.

In 2025, the estate tax and the generation-skipping transfer tax would be repealed. In general, income tax basis would continue to be stepped-up (or stepped-down) to fair market value at death. The gift tax would remain, but the top gift tax rate would be reduced from 40% to 35%.

Senate proposal. The gift and estate tax basic exclusion amount would be doubled to about $11,200,000 in 2018.

IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Hurricane Disaster Relief

October 24, 2017 By SeaCure Advisors Leave a Comment

Hurricane Disaster Tax Relief

In a four-week period, the United States was struck by three Category 4 hurricanes. The resulting damage is staggering. As humanitarian relief efforts continue, new legislation provides tax relief for those affected by the storms. Additional tax relief provisions have been announced by the IRS.

Disaster Tax Relief Act of 2017

The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (the “Act”), signed into law on September 29, 2017, provides temporary tax relief for those affected by Hurricanes Harvey, Irma, and Maria.

Retirement plan (including IRA) distributions

Pre-existing law. In general, distributions from IRAs and other retirement plans are subject to income tax in the year distributed. A 10% early distribution penalty also generally applies to the taxable portion of distributions before age 59½, unless an exception applies.

Temporary changes. The Act provides that the 10% early distribution penalty will not apply for up to $100,000 of qualified hurricane distributions from qualified retirement plans. (Distributions must be made before January 1, 2019.) Also, the distribution can be ratably included in gross income over a three-year period. Additionally, the distribution can be recontributed to a qualified retirement plan within three years of the distribution. To qualify, the individual must have a principal place of abode in the hurricane disaster area and have sustained an economic loss from the hurricane.

Retirement plan loans

Pre-existing law. In general, an individual can take a loan from a qualified plan for up to the lesser of (1) $50,000 or (2) one-half the present value of the nonforfeitable accrued benefit of the employee under the plan (generally with up to a five-year repayment term). Loans cannot be taken from IRAs.

Temporary changes. For a loan to a qualified individual made from September 29, 2017, to December 31, 2018, the Act increases the maximum loan amount to the lesser of $100,000 or the full present value. Due dates for payments under the loan can be deferred for up to one year, and the term of the loan can be extended by one year.

Recontributions of withdrawals for home purchases

For individuals who took a hardship withdrawal from a qualified plan (after February 28, 2017, and before September 21, 2017) to be used to purchase or construct a personal residence in the hurricane disaster areas, but were unable to do so due to the hurricanes, the Act allows them to recontribute the withdrawal amount to an eligible retirement plan between August 23, 2017, and February 28, 2018. This allows the individual to avoid tax on the distributed amount.

Employee retention credit

If a business in the disaster zone was inoperable due to damage sustained from the hurricanes but continued to pay eligible employees during the period of inoperability, the Act allows the employer a maximum $2,400 income tax credit per eligible employee (equal to 40% of qualified wages up to $6,000 paid during the period of inoperability) through December 31, 2017. This employee retention credit is not allowed if the employer is also claiming the work opportunity credit with respect to the employee.

Charitable gifts for disaster relief

Pre-existing law. If an individual itemizes deductions, an income tax charitable deduction is available for gifts to charity. The amount of the deduction is limited to 50%, 30%, or 20% of adjusted gross income (AGI), depending on the type of property and the charity. Amounts disallowed because of the percentage limitations can be carried over for up to five years, subject to the percentage limitations in the carryover years. The charitable deduction is also subject to an overall limitation on most itemized deductions based on AGI.

Temporary changes. The Act makes the 50%, 30%, or 20% of AGI limitations inapplicable for cash contributions made through December 31, 2017, to a qualified charity for relief efforts in the hurricane disaster areas. Nor are such contributions subject to the overall limitation on itemized deductions. They are, however, limited to the excess of AGI over all other charitable gifts that are allowed under the 50%, 30%, or 20% of AGI limitations. An election must be made to obtain this tax relief, and a contemporaneous written acknowledgment obtained from the charity that the contribution is for such hurricane relief efforts.

Casualty loss deduction

Pre-existing law. If an individual itemizes deductions, an income tax deduction is available for net casualty losses. The first $100 of such losses is not deductible; the remaining losses can be deducted only to the extent that they exceed 10% of AGI. Also, the standard deduction is not available for alternative minimum tax (AMT) purposes.

Temporary changes. For qualified disaster-related personal casualty losses, the Act increases the $100 amount to $500 and provides that the 10% of AGI floor does not apply. The standard deduction is increased by the net disaster loss (you do not need to itemize deductions to get this tax relief), and the standard deduction is allowed for AMT purposes to the extent of the net disaster loss.

Child tax credit and earned income credit

Pre-existing law. Certain individuals may qualify for a child tax credit or an earned income credit depending on the amount of their earned income.

Temporary changes. As provided by the Act, qualified individuals with a principal abode in one of the hurricane disaster areas can substitute their earned income from the preceding taxable year for their earned income in the hurricane year when determining their child tax credit or earned income credit.

IRS Guidance (IR-2017-160)

The IRS has provided a rundown of some key tax relief available to victims of Hurricanes Harvey, Irma, and Maria. In general, the relief is provided to individuals in Florida, Georgia, Puerto Rico, the U.S. Virgin Islands, and parts of Texas.

The relief generally postpones various tax deadlines for individuals and businesses to file any return and pay any taxes until January 31, 2018. These include:

Individual tax returns with an extension due date of October 16, 2017
Business filers with an extension due date of September 15, 2017
Quarterly estimated tax payments with due dates of September 15, 2017, and January 16, 2018
Quarterly payroll and excise tax returns with a due date of October 31, 2017
Tax-exempt organizations with an extension due date of November 15, 2017

Other provisions include:

The IRS states that employer-sponsored leave-based donation programs can aid hurricane victims. Under these programs, employees may forgo their vacation, sick, or personal leave in exchange for cash payments the employer makes before January 1, 2019, to charities providing relief to hurricane victims. Donated leave is not included in the employee’s income, and the cash payments to charity can be deducted by the employer as a business expense.
Employer-sponsored retirement plans can allow a hurricane victim to take a hardship distribution or borrow up to the statutory limits from the victim’s retirement plans. The guidance states that a person who lives outside the disaster area can use such a distribution or loan to assist a son, daughter, parent, grandparent, or dependent who lived or worked in the disaster area. Hardship withdrawals must be made by January 31, 2018.
Certain late-deposit penalties for federal payroll and excise tax deposits, normally due during the first 15 days of the disaster period, are waived.
Individuals and businesses with casualty losses can claim them on the income tax return for the year the loss occurred or the return for the prior year.
The IRS is waiving the usual fees and expediting requests for copies of previously filed tax returns for disaster-area taxpayers.
The IRS is urging disaster-area taxpayers who are contacted by the IRS on a collection or examination matter to be sure to explain to the IRS how the disaster impacts them.

Tax Tips That Will WOW You!

March 7, 2017 By SeaCure Advisors Leave a Comment

Welcome to Tax season 2017! Did you know, the federal filing deadline is less than two months away on Tuesday, April 18? Yes, the clock is ticking! As you prepare to file your taxes, we want to help you make the most of your available credits and deductions. The way we see it, every dollar you do not spend on taxes is one you can potentially invest toward your financial future. Here are tips for tax deduction and credit planning, with information on who is eligible and how you could possibly benefit.

Understanding Available Credits

Each tax credit you qualify for will directly reduce your tax payments. The IRS offers two kinds of credits: refundable and nonrefundable. With refundable credits, you can receive a refund, even if you owe less than the credit amount. On the other hand, nonrefundable credits offer a refund amount up to your tax liability.

Knowing which tax credits you qualify for can significantly reduce the amount of taxes you owe – and possibly even result in a refund. The IRS has a number of credits for individual taxpayers, but here is a list of common ones you could qualify for:

Earned-Income Tax Credit: For households with low to moderate income. The income limits can fluctuate, and many more people qualify for this credit than may realize it. In fact, 25% of eligible taxpayers do not claim this credit – which can be over $6000 per household.

Child and Dependent Care Credit: For households who pay for childcare. If you have dependent children and pay for childcare, you may qualify for credits up to $6000, depending on your adjusted gross income (AGI).

Credit for the Elderly or Disabled: For taxpayers 65 and older, or those on permanent disability who meet income requirements. This credit starts at $3750 and goes as high as $7500. So, if you fit the age or disability restrictions, researching your eligibility is well worth the effort.

Lifetime Learning Credit: For households paying for education.

This credit can provide you up to $2000 toward qualified tuition and enrollment fees. To be eligible, you must have a modified AGI less than $130,000 as a married couple or $65,000 as an individual.

Premium Tax Credit: For households that purchased health insurance through a federal or state marketplace. This credit helps people cover the cost of premiums for insurance they purchase through the Health Insurance Marketplace. Depending on your income and other personal details, you may be able to receive a premium tax credit if you, your spouse, or your dependent purchased an eligible health insurance plan.

Planning Your Deductions

Deductions help reduce your taxable income, thereby hopefully lowering your tax liabilities. Between itemized and standard deductions, taxpayers claimed nearly $2 trillion in the most recently tracked year. That’s a lot of money! But, chances are, many people miss eligible deductions and still pay more in taxes than they need to.

Remember, when you use the standard deduction, you can likely claim a higher deduction if you or your spouse has a qualifying vision impairment or a birthday on January 2, 1952, or earlier.

If you itemize your deductions, you are likely familiar with the opportunities to write off your home mortgage interest, tuition fees, and charitable contributions. But here are a few more deductions you may be eligible to take, depending on your circumstances:

State Sales Tax: Mostly for households who don’t pay state or local income tax. If you only pay federal income taxes, you may be able to deduct your state sales tax on your federal return. This deduction is especially helpful if you made a large, taxable purchase in 2016, such as a car.

Business Travel Expenses: For taxpayers who have unreimbursed work travel. If you paid for travel to conferences, meetings, or other work obligations, you may be able to deduct your expenses. The list of potentially deductible items goes beyond transportation and lodging to include dry cleaning, meals, business calls, and more.

Student Loan Interest: For households paying student loan debt.

If you currently pay student loan debt, you may be able to deduct interest, depending on your income and specific circumstances. Deductions can be up to $2500 for student loan interest – and you are allowed to claim this deduction even if you don’t itemize deductions on your tax return.

Sale of Your Home: For households who profited from selling their main home in 2016. If you sold your primary residence last year and earned a profit, you may qualify to claim this exclusion. If you qualify, you can exclude up to $250,000 of the gain from your income – or up to $500,000 if you file taxes jointly with your spouse.

As you can see, the opportunities to reduce your tax liabilities are vast, and these credits and deductions are only the beginning. It is best to consult with your tax preparer or a qualified tax professional.

Here’s to a successful tax filing season!
Carolyn Howard
(877) 328-4037

Tax Cuts and Jobs Act: Impact on Individuals

Individual income tax rates

Standard deduction and personal exemptions

2018 Standard Deduction Amounts

Itemized deductions

Child tax credit

Alternative minimum tax (AMT)

2018 AMT Exemption Amounts

2018 AMT Exemption Phaseout Thresholds

Other noteworthy changes

Tax Cuts And Jobs Act

Proposed Tax Reform Legislation

Individual income tax rates

Standard deduction, itemized deductions, and personal exemptions

Child tax credit and new family tax credit

Alternative minimum tax

Kiddie tax

Corporate tax rates

Special provisions for business income of individuals

Retirement plans

Estate, gift, and generation-skipping transfer tax

Hurricane Disaster Relief

Hurricane Disaster Tax Relief

Disaster Tax Relief Act of 2017

Retirement plan (including IRA) distributions

Retirement plan loans

Recontributions of withdrawals for home purchases

Employee retention credit

Charitable gifts for disaster relief

Casualty loss deduction

Child tax credit and earned income credit

IRS Guidance (IR-2017-160)

Tax Tips That Will WOW You!

Understanding Available Credits

Planning Your Deductions

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