CHAPTER ONE THE INDIVIDUAL TAXPAYER

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1 CHAPTER ONE THE INDIVIDUAL TAXPAYER I. Introduction A. President Trump signed the tax reform bill into law on December 22, 2017, and it makes major changes to the U.S. tax code for both individuals and corporations. Tax Professional's Alert: The ACT represents the most significant tax changes in the United States in more than 30 years. B. Many of the changes to the Internal Revenue Code in the ACT are temporary. 1. This is true especially with respect to the provisions of the bill impacting individuals. 2. This decision was made in order to keep the bill within budgetary parameters, but with no guarantees that a future Congress would extend them. Tax Professional's Alert: Unless noted otherwise, the changes made by the tax reform bill go into effect for the 2018 tax year, which means you will first notice them on tax returns that you file in II. Individual Taxpayers A. Changes made to the taxation of individuals by the ACT include but are not limited to the following: 1. Personal exemption no longer allowed. Tax Professional s Alert: Since 1913 taxpayers have been allowed a personal exemption. Many families with children will come out ahead under the new law for 2018, especially if they took the standard deduction in the past. But some others will not, especially if their children are age 17 or older. 2. Tax brackets change to 7 brackets, 37% the highest. 1

2 The 2018 Federal Income Tax Brackets Tax Professional's Alert: One thing to notice from these brackets is that the so-called marriage penalty, which many Republican leaders (including President Trump) wanted to eliminate, is almost absent. If you are not familiar, here's a simplified version of how the marriage penalty works. Let's say that two single individuals each earned a taxable income of $90,000 per year. Under the old 2018 tax brackets, both of these individuals would fall into the 25% bracket for singles. However, if they were to get married, their combined income of $180,000 would catapult them into the 28% bracket. Under the new brackets, they would fall into the 24% marginal tax bracket, regardless of whether they got married or not. In fact, the married filing jointly income thresholds are exactly double the single thresholds for all but the two highest tax brackets in the new tax law. In other words, the marriage penalty has been effectively eliminated for everyone except married couples earning more than $400,000. 2

3 Some significant problems remain, but issues for many married couples have been reduced or eliminated. These tax issues continue to remain in the penalty box. For two-income couples: Federal income tax bracket structure for very high-income taxpayers Net investment income tax and additional Medicare tax Deduction for state and local taxes Net capital losses Mortgage interest and home-equity debt limit 3. Standard deduction a. The higher standard deduction really falls more under the category of a simplification. Tax Professional s Alert: Switching to the standard deduction will simplify the returns of more than 25 million filers. It will also lighten the IRS's burden, because the agency will have fewer deductions to monitor. b. The standard deduction has roughly doubled for all filers, but the valuable personal exemption has been eliminated. Example: A single filer would have been entitled to a $6,500 standard deduction and a $4,150 personal exemption in 2018, for a total of $10,650 in income exclusions. Under the new tax plan, they would just get a $12,000 standard deduction. The following is a comparison between the standard deductions of the new and old tax laws. Tax Filing Status Previous Standard Deduction (Set to take effect in 2018) New Standard Deduction Single $6,500 $12,000 Married Filing Jointly Married Filing Separately $13,000 $24,000 $6,500 $12,000 3

4 Tax Filing Status Previous Standard Deduction (Set to take effect in 2018) New Standard Deduction Head of Household $9,350 $18,000 c. Additional Standard Deduction Congress retained the "additional standard deduction" for people age 65 and older in the new law. It is $1,600 for singles and $1,300 for each spouse in a married couple for Example: Tom and Beanna are a married couple, ages 67 and 65, with no children at home. Prior law for 2018 would have given them a standard deduction of $13,000, additional deductions of $2,600, and personal exemptions to tallying $8,300, for a total of $23,900. Under the new law, Tom and Beanna will get a standard deduction of $24,000, plus an additional standard deduction of $2,600, for a total of $26,600, or $$2,700 more. Additional Standard Deduction for Taxpayers Over Age 65 or Who Are Blind Single Individual $12,000 Single Individual, 65 or older or blind $13,600 Single Individual, 65 or older and blind $15,200 Married Individual, separate return $12,000 Married Couple, joint return $24,000 Married Couple, joint return, one spouse 65 or older or blind $25,300 Married Couple, joint return, one spouse 65 or older and blind $26,600 Married couple, joint return, both spouses 65 or older or blind $26,600 Married couple, joint return, both spouses 65 or older and blind $29,200 Head of Household $18,000 Head of Household, 65 or older or blind $19,600 Head of Household. 65 or older and blind $21,200 Qualifying widow(er) (surviving spouse) $24,000 Qualifying widow(er) (surviving spouse), 65 or older or blind $25,300 Qualifying widow(er) (surviving spouse), 65 or older and blind $26,600 d. Standard Deduction of a Dependent The standard deduction of a dependent is the greater of the following two amounts but not exceeding the standard deduction for a single individual for the year ($12,000). The base amount which is $1,050, or 4

5 The child's earned income plus $350. e. Kiddie Tax Figured Differently Example: Old Law Greater of the two amounts: Not to exceed single individual standard deduction for year ($12,000) Kiddie tax rules applied New Law Earned income + $350 is Standard deduction. Unearned income taxed at Estate and Trust Rates Adam is 17 and has $2,000 of earned income and $7,000 of unearned ordinary income. Standard deduction for Adam is $2,350 ($2,000 of earned income + $350). Taxable income is $6,650 ($2,000 + $7,000 = $9,000 - $2,350. $6,650 is treated as unearned because the $2,350 standard offsets earned income plus the first $350 of unearned income. Tax Calculation First $2,100 (amount up to the kiddie tax unearned income threshold) taxed at 10% under regular tax rates = $210. Remaining $4,550 of taxable income ($6,650 - $2,100) taxed at rates for Trusts and Estates. $2,550 at 10% = $255, remaining $2,000 taxes at 24% = $480. Total Tax for Adam is $210 + $255 + $480 = $945. Tax Rates for Trusts and Estates 10% Bracket $ 0 - $ 2,550 24% Bracket $ 2,551 - $ 9,150 35% Bracket $ 9,151 - $ 12,500 37% Bracket $ 12,501 and above Long-Term Capital Gain & Qualified Dividend Rates for Estates and Trusts 0% Bracket $ 0 - $ 2,600 15% Bracket $ 2,601 - $ 12,700 20% Bracket $ 12,701 and above 5

6 4. Capital Gains taxes a. The general structure of the capital gains tax system, which applies to items of income such as stock sales and sales of other appreciated assets, is not changing. b. However, there are still a few important points to know. Short-term capital gains are still taxed as ordinary income. Since the tax brackets applied to ordinary income have changed significantly short-term gains are likely taxed at a different rate than they formerly were. Under the new tax law, the three capital gains income thresholds don't match up perfectly with the tax brackets. Under previous tax law, a 0% long-term capital gains tax rate applied to individuals in the two lowest marginal tax brackets, a 15% rate applied to the next four, and a 20% capital gains tax rate applied to the top tax bracket. Instead of this type of structure, the long-term capital gains tax rate income thresholds are similar to where they would have been under the old tax law. For 2018, they are applied to maximum taxable income levels as follows: Long-Term Capital Gains Rate Single Taxpayers Married Filing Jointly Head of Household Married Filing Separately 0% Up to $38,600 Up to $77,200 Up to $51,700 Up to $38,600 15% $38,600- $425,800 $77,200- $479,000 $51,700- $452,400 $38,600- $239,500 20% Over $425,800 Over $479,000 Over $452,400 Over $239,500 Tax Professional s Alert: The 3.8% net investment income tax that applied to high earners remains the same and with the exact same income thresholds. Lawmakers also did not enact a proposed provision for individual investors known as FIFO, for "first-in, first-out." This change would have forced investors selling part of a 6

7 holding in a taxable account - as opposed to a retirement account - to sell their oldest shares first, raising taxes in many cases. Congress also preserved most tax exemptions for municipal-bond interest. 5. Tax Breaks for Parents a. Child Tax Credit Phaseout Threshold for the Child Tax Credit The personal exemption is going away, which could disproportionally affect larger families. This loss and more should be made up for by the expanded Child Tax Credit, which is available for qualified children under age 17 at the end of the year. More families are eligible for this credit. The credit now begins to phase-out at $400,000 of income for couples and $200,000 for singles, compared with 2017 levels of $110,000 for couples and $75,000 for singles. Specifically, the bill doubles the credit from $1,000 to $2,000, and also increases the amount of the credit that is refundable to $1,400. Tax Filing Status Old Phaseout Threshold New Phaseout Threshold Married Filing Jointly $110,000 $400,000 Individuals $75,000 $200,000 Tax Professional's Alert: The reason the expanded child credit is more valuable than the personal exemption to many families with children under 17 is that a tax credit is a dollar-for-dollar offset of taxes, while a deduction merely reduces taxable income. Example: A married couple with three young children and taxable income of about $200,000 in 2017 would not have qualified for the prior child tax credit. The personal exemption could have saved them about $1,100 in tax per child. For 2018, the child credit would save such a family $2,000 of tax per child. A deduction merely reduces taxable income and a credit is dollar-for- dollar offset of taxes. 6. New Credit 7

8 a. If your children are 17 or older or you take care of elderly relatives, you can claim a nonrefundable $500 credit, subject to the same income thresholds. b. They do not qualify if covered with the Child Tax Credit. c. The new provisions do not alter existing tax code rules defining who is a dependent. d. These changes will expire after Tax Professional s Alert: The Child and Dependent Care Credit, which allows parents to deduct qualified child care expenses, has been kept in place. This can be worth as much as $1,050 for one child under 13 or $2,100 for two children. Plus, up to $5,000 of income can still be sheltered in a dependent care flexible spending account on a pretax basis to help make child care more affordable. You cannot use both of these breaks to cover the same child care costs, but with the annual cost of child care well over $20,000 per year for two children in many areas, it is safe to say that many parents can take advantage of the FSA and credit, both of which remain in place. 7. Education Tax Breaks a. Earlier versions of the tax bill called for reducing or eliminating some education tax breaks, but the final version did not. b. Specifically, the Lifetime Learning Credit and Student Loan Interest Deduction are still in place, and the exclusion for graduate school tuition waivers survives as well. c. One significant change is that the bill expands the available use of funds saved in a 529 college savings plan to include levels of education other than college. If you have children in private school, or you pay for tutoring for your child in the K-12 grade levels, you can use the money in your account for these expenses and should be taken into account when making financial-aid decisions for the school year. Withdrawals are tax-free if they are used to pay eligible education expenses such as college tuition, books, and often room and board. d. These plans are popular with middle and upper income families. 8

9 Tax Professional's Alert: According to the latest data from the College Savings Plans Network, assets in 529 plans grew to $275 billion in 2016 from $106 billion a decade earlier. Tax Professional's Alert: Those who want to use this new education tax break should also check carefully to make certain that these withdrawals are approved for their specific plan. Several states have clarified that they are, but New York has warned account owners that such withdrawals could have state-tax consequences and that it is still evaluating the new law. 8. Transfers to ABLE Accounts a. In another significant change, the overhaul also enables savers to transfer funds from 529 plans to 529 ABLE accounts. b. ABLE accounts are for people who become blind or disabled before age 26 and do not limit the person's access to Medicaid and Social Security income or SSI benefits. c. As with 529 plans, 529 ABLE plans allow assts to grow tax-free. Annual contributions are capped at $15,000, and withdrawals can be tax-free if used to pay expenses such as housing, legal fees and employment training. d. Total assets in an account can reach $100,000 without affecting SSI benefits. e. The recent change allows transfers of up to $15,000 a year from a regular 529 plan to a 529 ABLE account. The ability to make such transfers avoids a significant drawback; that after the disabled person's death, remaining funds in an ABLE account typically go to the state to repay benefits if the person was receiving Medicaid, as many are. f. But the assets of a regular 529 plan needn't go to the state at death. Under the new rules someone could fund a 529 account for a disabled person and transfer money from it as needed to a 529 ABLE account. This arrangement offers tax-free growth and perhaps a state-tax deduction without giving up ownership of assets. 9. Other Education Benefits a. Many changes related to education seemed to be on the horizon as the tax overhaul took shape. In the end, aside from adjustments 9

10 related to 529 plans, Congress set aside most other education changes. The repeal of tax-free tuition waivers for graduate students, researchers and family members of university faculty and staff was not addressed in the final version. The end of the student-loan interest deduction of up to $2,500 per tax return and a tax benefit for employer-paid tuition did not make the final version as well. No changes were made to the American Opportunity tax credit, the Coverdell education savings accounts and the Lifetime Learning tax credit. b. The overhaul did make an important change for people with student loans who die or become disabled: Loans that are forgiven due to death or disability are no longer taxable. Tax Professional s Alert: The above the line deduction for education expenses which expired on 12/31/16 was not renewed in the ACT but was renewed for 2017 in the Bipartisan Budget Act of Tax Professional's Alert: Educators can still deduct up to $250 of personal expenses for classroom supplies. Tax Professional s Alert: Even though most major deductions are being kept in place, the higher standard deductions will make itemizing not worthwhile for millions of households. Example A married couple pays $8,000 in mortgage interest, makes $4,000 in charitable contributions, and pays $5,000 in state and local taxes. This adds up to $17,000 in deductions, which when compared with the previous $13,000 standard deduction makes itemizing look like a smart idea. However, with the new $24,000 standard deduction for married couples, it would no longer be worth it to itemize. Tax Professional s Alert: The Joint Committee on Taxation estimates that 94% of households will claim the standard deduction in 2018, up from about 70% now. Loss of Itemized Deductions Before you decide your clients will not itemize their deductions, consider state income tax conformity to federal law. 10

11 While the Internal Revenue Service is already touting that no state can dictate federal law, reconciling differences may make itemizing for state tax purposes while applying the federal standard deduction. State Income Tax Conformity to Federal Law State Conforms/Automatic/Fixed Base Alabama Automatic State AGI Alaska N/A None Arizona Fixed Federal AGI Arkansas Selective State AGI California Selective Federal AGI Colorado Automatic Federal Taxable Income Connecticut Automatic Federal AGI Delaware Automatic Federal AGI District of Columbia Automatic Federal AGI Florida N/A None Georgia Fixed Federal AGI Hawaii Fixed Federal AGI Idaho Fixed Federal AGI Illinois Automatic Federal AGI Indiana Fixed Federal AGI Iowa Fixed State AGI Kansas Automatic Federal AGI Kentucky Fixed Federal AGI Louisiana Automatic Federal AGI Maine Fixed Federal AGI Maryland Automatic Federal AGI Massachusetts Automatic Federal AGI w/exceptions Michigan Fixed/Automatic Federal AGI Minnesota Fixed Federal Taxable Income Mississippi Selective State AGI Missouri Automatic Federal AGI Montana Automatic Federal AGI Nebraska Automatic Federal AGI Nevada N/A None New Hampshire N/A None Broad-based New Jersey Selective State Gross Income New Mexico Automatic Federal AGI New York Automatic State AGI North Carolina Fixed Federal AGI North Dakota Automatic Federal Taxable Income Ohio Fixed Federal AGI Oklahoma Automatic Federal AGI Oregon Fixed Federal AGI 11

12 Pennsylvania Selective State Taxable Income Rhode Island Automatic Federal AGI South Carolina Fixed Federal Taxable Income South Dakota N/A None Tennessee N/A None Broad-based Texas N/A None Utah Automatic Federal AGI Vermont Fixed Federal AGI Virginia Fixed Federal AGI Washington N/A None West Virginia Fixed Federal AGI Wisconsin Fixed Federal AGI Wyoming N/A None 10. Retirement a. Generally, the current rules for 401(k) and other retirement plans remain in place. b. The ACT repeals the rule allowing taxpayers to recharacterize Roth IRA contributions as traditional IRA contributions to unwind a Roth conversion. c. Until the overhaul, savers could also undo a Roth conversion by "recharacterizing" it by the October tax-filing date of the year following the original conversion. Tax Professional s Alert: Reason for undoing the conversion typically includes a lower account balance than at the time of the switch, or a lack of cash to pay the tax bill. Tax Professional's Alert: The Internal Revenue Service has confirmed that taxpayers have until October 15, 2018 to undo 2017 Roth IRA conversions. d. Once you convert to a ROTH, it stays a ROTH. e. Rules for hardship distributions will be modified along with other changes. 11. Alimony a. In 2017 alimony is a deductible expense for people paying it and those who receive it must pay income taxes on it. Tax Professional's Alert: The Internal Revenue Service reports that the amount of alimony taxpayers said they paid is greater than the amount ex-spouses said they 12

13 received. The IRS is the big beneficiary. The IRS could spend less time policing a large tax gap between amounts deducted by alimony payers and what is reported by alimony recipients. b. Beginning in 2019, the ACT makes divorce a bit more burdensome as alimony will no longer be deductible and the person receiving the payments would no longer need to pay taxes on alimony. c. Grandfathered alimony agreements arranged for prior to 2019 are unaffected. Tax Professional's Alert: Divorcing couples considering alimony payments should be aware of this deadline. d. The new rules will apply to any modified agreements "if the modification expressly provides that the amendments made by this section apply to such modification." e. The ACT also specifies that the alimony recipient would no longer be able to treat the alimony as earned income for purposes of making an IRA contribution. Tax Professional s Alert: This provision of the ACT will provide relief for IRS in tracing payments for alimony both income and adjustments to income. The last year of reporting alimony statistics was 2010 when 600,000 taxpayers claimed alimony as an AGI adjustment vs. 239,000 that claimed alimony as income. Many recipients are not U.S. citizens or residents. 12. Obamacare penalties a. The tax reform bill repeals the individual mandate, meaning that people who do not buy health insurance will no longer have to pay a tax penalty. b. This change does not go into effect until 2019, so for 2018, the "Obamacare penalty" can still be assessed. Tax Professional's Alert: This portion of the ACA is repealed after The penalty is the greater of an inflation adjusted flat dollar amount or 2.5% of the taxpayer's household income. For 2018 the flat dollar amount is $695 per adult and $ per child but not more than $2,085 per family. It is unclear how strictly the administration will enforce the penalty payment for The Alternative Minimum Tax, or AMT 13

14 a. Originally implemented to ensure that high-income Americans paid their fair share of taxes, regardless of how many deductions they could claim. Essentially, higher-income households need to calculate their taxes twice -- once under the standard tax system and once under the AMT -- and pay whichever is higher. b. The problem is that the AMT exemptions weren't initially indexed for inflation, so over time, the AMT started to apply to more and more people, including the middle class, which it was never intended to affect. c. The ACT permanently adjusts the AMT exemption amounts for inflation in order to address this problem and makes them significantly higher initially in Tax Professional's Alert: The good news for most current AMT payers is that it will affect far fewer people. d. The AMT in effect through the end of 2017 affected the filers of about five million returns, with many of them earning between $200,000 and $600,000. It is expected that the revised AMT is to affect the filers of about 200,000 returns, with many of them earning more than $600,000. e. Several triggers of the prior AMT, such as state and local tax deductions, personal exemptions and miscellaneous deductions, have been reduced or repealed. In addition, the AMT exemption was expanded. f. Tax breaks that will trigger the revised AMT are likely to be more unusual items such as incentive stock options, interest from certain municipal bonds, and net operating losses. The Chart below shows how the AMT exemptions are changing for Tax Filing Status 2017 AMT Exemption Amount 2018 AMT Exemption Amount Single or Head of Household $54,300 $70,300 Married Filing Jointly $84,500 $109,400 14

15 Tax Filing Status 2017 AMT Exemption Amount 2018 AMT Exemption Amount Married Filing Separately $42,250 $54,700 g. In addition, the income thresholds at which the exemption amounts begin to phase out are dramatically increased. The exemption amounts were set at $160,900 for joint filers and $120,700 for individuals, but the new law raises these to $1 million and $500,000, respectively. Tax Professional's Alert: Taxpayers who paid AMT in prior years, creating an AMT credit will likely be able to use the credit in 2018 with the increase in AMT exemption. Form 8801, Credit for Prior Year Minimum Tax - - Individuals, Estates, and Trusts. Tax Professional's may want to alert their clients now in order to take advantage of lower withholding or Estimated Tax Payments to not wait until April 15, 2019 to get the benefit of the credit. 14. Home-Sellers' Exemption a. Married couples filing jointly can continue to exclude $500,000 of profit on the sale of a primary home from taxes. For single filers, the exemption is $250,000 of profit. b. Lawmakers retained the existing provisions of Code Section Certain Self-Created Property Not Treated as Capital Asset a. Under Pre-ACT law, property held by a taxpayer (whether or not connected with the taxpayer's trade or business) is generally considered a capital asset under Code Sec. 1221(a). However, certain assets are specifically excluded from the definition of a capital asset, including inventory property, depreciable property, and certain self-created intangibles (e.g., copyrights, musical compositions). b. New law. Effective for dispositions after Dec. 31, 2017, the Act amends Code Sec. 1221(a)(3), resulting in the exclusion of patents, inventions, models or designs (whether or not patented), and secret formulas or processes, which are held either by the taxpayer who created the property or by a taxpayer with a substituted or transferred basis from the taxpayer who created the property (or for 15

16 whom the property was created), from the definition of a capital asset. (Code Sec. 1221(a)(3), amended by Act Sec ) 16. Tax-Free Reimbursement and Deductibility of Moving Expenses Suspended Under the New Tax Act a. Many employers pay for or reimburse moving expenses for new or relocating employees. An employer might cover the expenses for a new employee moving from out of state, or an employer might reimburse the cost for a family moving to a new assignment. Tax Professional s Alert: Previously, this could be done on a tax-free basis. However, the Tax Cuts and Jobs Act contained several changes affecting tax benefits typically offered by employers. This includes suspension of the ability to pay for or reimburse moving expenses on a tax-free basis or deduct unreimbursed expenses as an itemized deduction. b. This change does not prohibit employers from paying moving expenses, but it does make such payments taxable to the employee. c. Moving Expenses Under the Prior Law Under the prior law, so long as an employee s move met certain time and distance requirements: An employer could pay for or reimburse the expense of the employee s move on a tax-free basis (IRC sec. 132(g)), or The employee could deduct any unreimbursed expenses as an itemized deduction (IRC sec. 217). This benefit extended to the cost of transporting the employee, the employee s spouse, the employee s children, and the employee s household goods and personal effects from their former residence to their new residence. Reimbursable expenses included lodging but not meals. d. Moving Expenses Under the New Law The new tax bill suspends IRC sections 132(g) and 217 for tax years 2018 through As of January 1, 2018, moving expenses may no longer be paid by an employer on a tax-free basis or deducted by the employee if not paid for by the employer. 16

17 Accordingly, if an employer pays for an employee s move, any amounts paid are now includible in taxable wages. This means these amounts are also subject to income tax withholding and FICA and Medicare tax when paid. Exception There is an exception for members of the Armed Forces of the United States on active duty who move pursuant to a military order or permanent change of station. 17. Overall Limitation ( Pease Limitation) on Itemized Deductions Suspended a. Under Pre-ACT law, higher-income taxpayers who itemized their deductions were subject to a limitation on these deductions (commonly known as the Pease limitation ). b. For taxpayers who exceed the threshold, the otherwise allowable amount of itemized deductions was reduced by 3% of the amount of the taxpayers' adjusted gross income exceeding the threshold. c. The total reduction could not be greater than 80% of all itemized deductions, and certain itemized deductions were exempt from the Pease limitation. d. New law. For tax years beginning after Dec. 31, 2017 and before Jan. 1, 2026, the Pease limitation on itemized deductions is suspended. (Code Sec. 68(f), as amended by Act Sec ) III. Examples The following examples are illustrations of changes in individual and married filing joint taxpayer s taxation from 2017 to #1. John and Gloria filed a married filing jointly return in They are both over age 65 and took the standard deduction of $15,200 and personal exemptions of $8,100. Their adjusted gross income was $76,558 and their tax liability was $$6,706. In 2018, their itemized deductions will increase by $11,300 to $26,500 however they will loose $8,100 of personal exemptions, a net reduction in taxable income of $3,200. Result: Tax Savings of $1,360 17

18 #2. Robert and Mandie are high income taxpayers who filed married filing jointly in They have 3 dependent children. They itemize their deductions but their exemptions were zero due to the income limitation. The "Pease" limitations also limited their itemized deductions. Their adjusted gross income was $536,854 and their tax liability was $130,412 with the inclusion of AMT - $3,735. In 2018, due to the limitation on State and Local Taxes to $10,000, Robert and Mandie will be unable to itemize their deductions. The new standard deduction will reduce their taxes by $3,059 more. They had not been able to claim any dependents in 2017 therefore the loss of personal exemptions was not a tax impact. Although the "Pease limitations" do not apply in 2018, the impact was insufficient to allow Robert and Mandie to itemize their deductions. Result: With the reduction of taxable income, coupled with lower tax rates in 2018, Mandie and Robert will pay $9,586 less in tax. #3. David and Kathleen filed married filing jointly in They have two dependent children. They itemized their deductions but with an Adjusted Gross Income of $154,781 they received no child tax credit although they were able to claim $16,200 in personal exemptions. Their tax liability was $21,186. In 2018, the standard deduction will allow David and Kathleen an additional deduction of $4,251 but they will lose their personal exemptions of $16,200, increasing their taxable income by $11,949. The child tax credit of $4,000 will apply. Lower tax rates and the child tax credit apply. Result: Tax savings of $4,535. #4. Tim is a single gentleman who is age 65 and does not itemize his deductions. His tax liability in 2017 with an Adjusted Gross Income of $114,723 was $8,969. In 2018 Tim's standard deduction with his age enhancement is $5,650 more but he will lose his personal exemption of $4,050. Result: Tax decrease of $417 in #5. David and Laurie are filing married filing jointly and itemize their deductions largely due to Form 2106 employee business expenses and investment fees. They have no additional dependents. With their adjusted gross income of $199,838 their tax liability is $15,610 18

19 In 2018, they will continue to be able to itemize their deductions but due to the loss of Form 2106 expenses and investment expenses their deductions will decrease by almost $25,000. They will also loose their $8,100 in personal exemptions. Result: Tax increase of $2,300. David and Laurie have moved their brokerage account to mutual funds in order to avoid annual investment fees that are no longer tax deductible. Tax Professional's Alert: Each taxpayer is affected differently by the Tax Cuts and Jobs Act. Tax planning is back! Failure to plan is planning to fail. 19