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Important Changes Made By The Tax Cuts And Jobs Act

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The Tax Cuts and Jobs Act (TCJA) was passed by the US Congress last year and signed into law. This article summarizes some important changes to the tax code which may affect seniors, especially those seniors who either are still in the work force and/or homeowners. Some of these changes are as follows:

1. As I am sure you know, there were reductions in the individual tax rates. Thus, the amount of taxes which should now be withheld from each paycheck you receive should be reduced. Recently, the IRS distributed revised tax withholding tables so employers can withhold the correct amounts based on the lower tax rates. I would recommend that all employed persons check with their employer to make sure they have the new tax withholding tables and that they are being used. If not, I suggest you request that your employer correct this issue.

2. As of this date, there have been no revisions, either under TCJA, or any other legislation, to reduce any Social Security or Medicare benefits. Rumblings and rumors circulate that legislation will be proposed in the future to reduce them. To date though, no such legislation has been introduced and it is an election year so we may be safe for now. Also, as many of us know, there was a COLA increase which began as of January 2018. This was the first increase in SSI retirement benefits in quite awhile.

3. The corporate tax rate for C-corporations has been reduced to 21% beginning in 2018. This is down from 35%. In "marketing" the legislation, there was talk that employers would pass the corporate tax savings on to their employees. While some corporations have given their employees some modest bonuses, it appears that most of the corporate tax savings have not "trickled down" to the employees but, rather, have gone to either the corporation repurchasing its stock from shareholders or the payment of dividends to existing shareholders. Some reports estimate that less than 1.5% of the tax reduction trickled down.

4. There has been income tax relief included for some "pass-through" entities. A "pass-through" entity includes sole-proprietorships, partnerships, LLCs which are treated as sole-proprietorships or as partnerships for tax purposes and S corporations. Under prior tax law, the net taxable income from those business entities was passed through to the owners/partners/shareholders. Now, those entities may "pass through" to certain of the owners/partners/shareholders of those entities the same tax reductions as present for C corporations. If you own (in whole or in part) one of these kinds of entities, you should check with your attorney or accountant to determine if you are entitled to any tax relief.

5. Individual tax deductions have been reduced. In the past, a significant percentage of all taxpayers itemized their deductions on Schedule A rather than taking the standard deduction. Under the TCJA, it has been estimated that less than 14% of all taxpayers will continue to itemize their deductions. Among the reasons are: the standard deduction was increased significantly so for many taxpayers, the standard deduction will be higher than what will be allowed for the deductions on Schedule A. In addition, several deductions which were allowed on Schedule A (and thus deductible) have been eliminated. So for many, the standard deduction is more advantageous. Below are some of those changes:

a. State and local taxes (real estate, sales and local wage taxes) are now limited to $10,000 whereas before, there were no limits Because of these limitations, an individual may no longer be able to take all of his or her real estate taxes like previously.

b. Medical deductions were not changed - you may still itemize medical if it exceeds 7.5% of your AGI.

c. Charitable contributions are still deductible but, again, with the standard deduction being increased so significantly, it may not be financially necessary for the individual to use the itemization but rather just take the standard deduction. Many charities are concerned about this because if the deduction is no longer valuable to the individual, some of those individuals may no longer contribute as they did before.

d. Some deductions have been eliminated in total. For example, employee deductions which are not reimbursed by the employer are no longer deductible. An example is where you have to purchase a work uniform and the employer does not reimburse for it or provide any allowance. If so, you may no longer deduct its cost. As a suggestion, try to get the employer to reimburse you for those business expenses.

e. In the past, an employer could purchase a monthly commuter ticket for an employee and the employer could take a tax deduction for it. Congress has originally enacted it as a way to increase use of mass transit rather than drive. Some employers did not request reimbursement from the employee so the employer got the deduction and it was not income to the employee. Even if reimbursement was not requested by the employer, it was still not taxable to the employee. The TCJA eliminated that deduction for the employer. As a general rule, commuting costs from home to your office are generally not deductible by an employee. However, transportation from one office to another office is deductible so keep track of those costs if you have them.

f. Mortgage interest deductions is capped based on a mortgage of $750,000 or less. Previously, the cap was based on a mortgage of $1,000,000. Further, the TCJA repeals the interest deduction for HELOCS or Home Equity Loans.

g. Previously, we could deduct the fees for having our taxes prepared. That deduction has been eliminated.

h. If you sustain a casualty loss, that loss could also be placed on Schedule A previously. That deduction has also been eliminated.

i. Most membership dues deductions have been eliminated (health clubs, eating clubs, etc.) and most entertainment related expenses have also been eliminated.

j. Most deductions related to non-food and non-beverage activities have been eliminated such as tickets for sporting events, tickets for arts and cultural events and so on.

6. On the bright side, the maximum tax rate is now 37% for individuals with taxable income of more than $500,000.

7. Another bright side is that the estate tax deduction has increased from roughly $5,000,000 to $11,200,000.

As you can see, there have been many changes. This article is general and should not be relied on by you in your tax preparation. Rather, it is important that you discuss your particular issues with a qualified tax professional to assist you when preparing your taxes for 2018 to determine how the new rules apply to you.

Of course, if you still have questions, please do not hesitate to contact me at This email address is being protected from spambots. You need JavaScript enabled to view it..

About the author:

Jim grew up in Philadelphia. After graduating from Penn State with a B.A. in history, Jim went to Villanova University School of Law where he graduated with a J.D. After graduation, Jim first went to work for the City of Philadelphia and then became employed by the Commodity Futures Trading Commission. In private practice, Jim's areas of concentration have been securities, commodity futures, real estate, tax, wills and trusts.

Editor's note: Here's this issue's legal column. Please remember that the information provided is intended only for educational purposes; consult with a local attorney for specific answers to your own situation.

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