- Posted by Kristi Cherry
- On January 26, 2017
- deductions, ira, limits, tax
RAA has expanded our services to include tax return preparation and tax planning, and as a result, I am very happy to join the RAA team to help you with your tax-related needs. As we begin the 2018 tax year, the Tax Cuts and Jobs Act of 2017 will historically change deductions, exemptions, and other important numbers for all taxpayers.
However, the new tax law does not change this year’s retirement savings limits other than small increases for inflation.
RETIREMENT ACCOUNT CONTRIBUTION LIMITS
The 2018 annual contribution limit for 401(k)s, 403(b)s, and other workplace accounts is increasing by $500 to $18,500. However, the additional catch-up contribution limit for those age 50 or over stands at $6,000. The IRA contribution limits of $5,500, or $6,500 for those age 50 or over continue, but some of the income limits are going up. For example, taxpayers who are covered by an employer-sponsored retirement plan cannot deduct their traditional IRA contributions if their income is above certain levels. This income limit is increasing to $73,000 for single taxpayers, $121,000 for married taxpayers filing jointly, and $199,000 for taxpayers who aren’t part of a workplace retirement plan but whose spouses are.
RETIREMENT & HEALTH PLAN LIMITS
NOT EVERYONE CAN CONTRIBUTE TO A ROTH IRA
The allowable Roth IRA contribution phases out over a certain range of annual incomes and eventually hits zero for high-income taxpayers. The Roth contribution income phase-out window for 2018 is $120,000 to $135,000 for single taxpayers, and $189,000 to $199,000 for married taxpayers filing jointly. However, because of these limitations, a Roth conversion may be an option to take part in the tax advantages of a Roth IRA.
Married couples filing a joint tax return may be eligible to contribute to what is known as a spousal IRA. A spousal IRA allows a working spouse to set up an IRA on his or her non-working spouse’s behalf, and make contributions up to IRS limits. This is a great tool to take advantage of certain tax benefits. However, some restrictions apply, so please consult with a financial professional to make sure this strategy is right for you.
The new tax law increases the estate tax exemption for 2018 to $11.2 million. Therefore, only a small percentage of taxpayers will have to worry about estate taxes. In addition, the annual exemption for gift taxes is rising to $15,000, which means you can give any one person up to $15,000 worth of gifts in 2018 and not have to worry about paying taxes on it. Finally, the foreign earned income exclusion for 2018 is $104,100. The foreign earned income exclusion defines how much foreign income you can earn while living abroad without having to pay United States taxes on it.
TOP INCOME TAX RATE
The new 37 percent income tax rate will affect single individuals with an income over $426,700. The 37 percent rate kicks in for married-filing-jointly taxpayers at $480,050.
STANDARD DEDUCTION & EXEMPTIONS
The Tax Cuts and Jobs Act of 2017 has a significant effect on the 2018 standard deduction. The new standard deduction is $24,000 for married taxpayers filing jointly, $12,000 for single and married-filing-separately taxpayers, and $18,000 for heads of households. For those that are able to itemize their deductions, the limitation on itemizing 2018 deductions starts at an adjusted gross income (AGI) of $320,000 for married-filing-jointly taxpayers and $266,700 for everyone else. If your earnings (AGI) are above your threshold, any itemized deductions you claim will be reduced. The new tax law eliminates personal exemptions for 2018. However, the child tax credit has been doubled to $2,000, with up to $1,400 being refundable. Also, the credits do not begin to phase out until an income level of $200,000 for singles and $400,000 for couples.
MISCELLANEOUS ITEMIZED DEDUCTIONS
Miscellaneous itemized deductions have been eliminated under the new tax law. These deductions include unreimbursed employee business expenses such as union dues, per diem offsets, airline pilot expenses, etc. Tax preparation and investment fees have also been eliminated.
HOW COULD THE NEW TAX LAW AFFECT YOU?
To find out how the tax law changes may impact your tax return, please email me at firstname.lastname@example.org or request a call to discuss your unique situation and identify any tax saving strategies available to you.
If you would like to learn more about my background and RAA’s tax services offering, please visit RAA.com/tax-info.