The turn of the calendar page usually ushers in a few small tax adjustments – allowable 401(k) and IRA contributions may get bumped up a bit to account for inflation, along with the IRA income limits and estate/gift tax exclusion amounts.
But 2018 brings more sweeping changes on the tax front, thanks to major legislation that Congress passed and President Donald Trump signed into law in the final days of 2017.
As the new year dawns, here are key tax-related data points to have on your radar for the year ahead. (Note that these changes apply to the 2018 tax year, unless otherwise noted.)
2018 Important Tax Facts for All Taxpayers
Income Tax Brackets: Seven tax brackets remain, but the specific parameters have changed, as follows (MFJ = married couples filing jointly):
- 10%: Single income between $0 – $9,525; MFJ income between $0 – $19,050.
- 12%: Single income between $9,525 – $38,700; MFJ income between $19,050 – $77,400.
- 22%: Single income between $38,700 – $82,500; MFJ income between $77,400 – $165,000.
- 24%: Single income between $82,500 – $157,500; MFJ income between $165,000 – $315,000.
- 32%: Single income between $157,500 – $200,000; MFJ income between $315,000 – $400,000.
- 35%: Single income between $200,000 – $500,000; MFJ income between $400,000 – $600,000.
- 37%: Single income of $500,000 or more; MFJ income of $600,000 or more.
Standard Deduction: Standard deduction amounts are increasing in 2018, to $12,000 for individuals and $24,000 for MFJ. In addition, the new tax laws eliminate personal exemptions. The net effect of those higher standard deduction amounts, combined with new rules like the one limiting mortgage interest deductions to mortgages of less than $750,000, is that itemizing deductions will be less beneficial for many taxpayers than was the case in the past. Taxpayers might consider bunching their deductible expenses into a single year, to the extent that they have some control over them, while claiming the standard deduction in other years.
Itemized Deductions: The new tax laws cap the combined deduction for state and local taxes, including property taxes, at $10,000 for both single and married couples. Also of interest for itemizers, charitable contributions amounting to up to 60% of the taxpayer’s adjusted gross income are deductible (that’s an increase from the previous 50% of adjusted gross income deductibility threshold). The new laws also allow for the deductibility of medical expenses in excess of 7.5% of adjusted gross income for both the 2017 and 2018 tax years.
Additionally, beginning in 2018 taxpayers will no longer be able to deduct miscellaneous itemized expenses such as advisor fees and tax preparation fees; through the 2017 tax year, these expenses can be deducted if they exceed 2% of adjusted gross income. As noted above, the new law limits interest deductibility to mortgages of $750,000 or less.
AMT-Exempt Amounts: Although the new tax laws don’t eliminate the alternative minimum tax, the exemption amounts for it are increasing significantly in 2018, to $70,300 for single filers and $109,400 for married couples filing jointly. In addition, those full exemptions are available to taxpayers with significantly higher incomes – $500,000 for individuals and $1 million for married couples filing jointly – than was previously the case.
2018 Important Tax Facts for Investors
Qualified Dividend and Long-Term Capital Gains Rates: Three rates are still in place for dividends and long-term capital gains – 0%, 15% and 20% – but they don’t map perfectly by tax bracket as they did in the past. Here are the parameters for each of the rates.
- 0%: Single income between $0 – $38,600; MFJ with income between $0 – $77,200.
- 15%: Single income between $38,600 – $425,800; MFJ income between $77,200 – $479,000.
- 20%: Single income over $425,800; MFJ income over $479,000.
Medicare Surtax: As in years past, an additional 3.8% Medicare surtax will apply to the lesser of net investment income or the excess of modified adjusted gross income over $200,000 for single taxpayers and $250,000 for married couples filing jointly.
IRA contribution limits (Roth or traditional): $5,500 under age 50; $6,500 over age 50.
Income limits for deductible IRA contribution, single filers or married couples filing jointly who aren’t covered by a retirement plan at work: None; fully deductible contribution.
Income limits for deductible IRA contribution, single filers covered by a retirement plan at work: Modified adjusted gross income under $63,000–fully deductible contribution; between $63,000 and $73,000–partially deductible contribution; more than $73,000–contribution not deductible.
Income limits for deductible IRA contribution, married couples filing jointly who are covered by a retirement plan at work: Modified adjusted gross income under $101,000–fully deductible contribution; between $101,000 and $121,000–partially deductible contribution; more than $121,000–contribution not deductible.
Income limits for nondeductible IRA contributions: None.
Income limits for IRA conversions: None, but note that the tax legislation eliminated the opportunity to recharacterize a Roth IRA as a traditional IRA, or vice versa.
Income limits for Roth IRA contribution, single filers: Modified adjusted gross income under $120,000 – full Roth contribution; between $120,000 and $135,000 – partial Roth contribution; more than $135,000–no Roth contribution.
Income limits for Roth IRA contribution, married couples filing jointly: Modified adjusted gross income under $189,000 – full Roth contribution; between $189,000 and $199,000 – partial Roth contribution; more than $199,000 – no Roth contribution.
Contribution limits for 401(k), 403(b), 457 plans, or self-employed 401(k) (traditional or Roth): $18,500 under age 50; $24,500 for age 50 and older.
Total 401(k) contribution limits, including employer (pretax, Roth, after-tax) and employee contributions and forfeitures: $55,000 if under age 50; $61,000 if 50-plus.
SEP IRA contribution limit: The lesser of 25% of compensation or $55,000.
Saver’s Tax Credit, income limit, single filers: $31,500.
Saver’s Tax Credit, income limit, married couples filing jointly: $63,000.
Health savings account contribution limit, single contributor: $3,450 (under 55); $4,450 (55 and over).
Health savings account contribution limit, family coverage: $6,900 (under 55); $7,900 (55 and over).
High-deductible health plan out-of-pocket maximum, self-only coverage: $6,650.
High-deductible health plan out-of-pocket maximum, family coverage: $13,300.
Section 529 college-savings account contribution limit: Per IRS guidelines, contributions cannot exceed amount necessary to provide education for beneficiary. Deduction amounts vary by state, and those contributing very large amounts may have to file a gift tax form. Note that beginning in 2018, 529 assets can be used for qualifying K-12 expenses.
Estate Tax, Gift, Generation-Skipping Tax: The new tax laws greatly increase the lifetime exclusion amount to $11.2 million through 2025; couples receive an exclusion that’s double that amount, or more than $22 million.
Paul Staib | Certified Financial Planner (CFP®), MBA, RICP®
Paul Staib, Certified Financial Planner (CFP®), RICP®, is an independent Flat Fee-Only financial planner. Staib Financial Planning, LLC provides comprehensive financial planning, retirement planning, and investment management services to help clients in all financial situations achieve their personal financial goals. Staib Financial Planning, LLC serves clients as a fiduciary and never earns a commission of any kind. Our offices are located in the south Denver metro area, enabling us to conveniently serve clients in Highlands Ranch, Littleton, Lone Tree, Aurora, Parker, Denver Tech Center, Centennial, Castle Pines and surrounding communities. We also offer our services virtually.
Paul Staib | Certified Financial Planner (CFP®), MBA, RICP®• Written By
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