Here are a few of the tax changes you should be aware of.

Individuals
In 2018, a number of tax provisions are affected by inflation adjustments, including Health Savings Accounts, retirement contribution limits, and the foreign earned income exclusion. Many others have been revised or eliminated due to the TCJA.

While the tax rate structure, which now ranges from 10 to 37 percent, remains similar to 2017 in that there are seven tax brackets, the tax-bracket thresholds increase significantly for each filing status. Standard deductions also rise significantly; however, personal exemptions have been eliminated through tax year 2025.

Standard Deduction
In 2018, the standard deduction increases to $12,000 for individuals (up from $6,350 in 2017) and to $24,000 for married couples (up from $12,700 in 2017).

Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

For calendar year 2018, a qualifying HDHP must have a deductible of at least $1,350 for self-only coverage or $2,700 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,650 for self-only coverage and $13,300 for family coverage.

Penalty for not Maintaining Minimum Essential Health Coverage
Under the TCJA, the penalty for not maintaining minimum essential health coverage has been eliminated but only for months beginning after December 31, 2018.

AGI Limit for Deductible Medical Expenses
In 2018, the deduction threshold for deductible medical expenses is temporarily reduced to 7.5% percent of adjusted gross income (AGI). This is retroactive to the tax year starting Jan. 1, 2017 and ends on Dec. 31, 2018.

Long-Term Capital Gains and Dividends
In 2018 tax rates on capital gains and dividends remain the same as 2017 rates (10%, 15%, and a top rate of 20%); however threshold amounts are different in that they don’t correspond to new tax bracket structure as they did in the past. For taxpayers in the lower tax brackets (10 and 12 percent), the rate remains 0 percent; however, the threshold amounts are $38,600 for individuals and $77,200 for married filing jointly. For taxpayers in the four middle tax brackets, 22, 24, 32, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 37 percent, whose income is at or above $425,800 ($479,000 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

In 2018 tax rates on capital gains and dividends remain the same as 2017 rates (10%, 15%, and a top rate of 20%); however threshold amounts are different in that they don’t correspond to new tax bracket structure as they did in the past. For taxpayers in the lower tax brackets (10 and 12 percent), the rate remains 0 percent; however, the threshold amounts are $38,600 for individuals and $77,200 for married filing jointly. For taxpayers in the four middle tax brackets, 22, 24, 32, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 37 percent, whose income is at or above $425,800 ($479,000 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Estate and Gift Taxes
For an estate of any decedent during calendar year 2018, the basic exclusion amount is $11,200,000, indexed for inflation (up from $5,490,000 in 2017). The maximum tax rate remains at 40 percent. The annual exclusion for gifts increases to $15,000.

Individuals – Tax Credits

Adoption Credit
In 2018, a non-refundable (only those individuals with tax liability will benefit) credit of up to $13,840 is available for qualified adoption expenses for each eligible child.

Earned Income Tax Credit
For tax year 2018, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,444, up from $6,318 in 2017. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Child Tax Credits
For tax years 2018 through 2025, the child tax credit increases to $2,000 per child, up from $1,000 in 2017, thanks to the passage of the TCJA.

The enhanced child tax credit, which was made permanent by the Protecting Americans from Tax Hikes Act of 2017 (PATH), remains under TCJA. The refundable portion of the credit increases from $1,000 to $1,400 so that even if taxpayers do not owe any tax, they can still claim the credit. Under TCJA, a $500 nonrefundable credit is also available for dependents who do not qualify for the child tax credit (e.g., dependents age 17 and older).

Child and Dependent Care Credit

The Child and Dependent Care Credit also remains under tax reform. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2018. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Individuals – Education
American Opportunity Tax Credit and Lifetime Learning Credits
The American Opportunity Tax Credit (formerly Hope Scholarship Credit) was extended to the end of 2018 by ATRA but was made permanent by PATH in 2017. There was no change under TCJA. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000 per return; however, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for tax year 2017.

Interest on Educational Loans
In 2018 (as in 2017), the $2,500 maximum deduction for interest paid on student loans is no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($135,000 joint filers).

Individuals – Retirement Contribution Limits
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $18,500. Contribution limits for SIMPLE plans remain at $12,500. The maximum compensation used to determine contributions increases to $275,000 (up from $270,000 in 2018).

Income Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $63,000 and $73,000, up from $62,000 to $72,000.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range increases to $101,000 to $121,000, up from $99,000 to $119,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s modified AGI is between $189,000 and $199,000, up from $186,000 and $196,000.

The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $120,000 to $135,000 for singles and heads of household, up from $118,000 to $133,000. For married couples filing jointly, the income phase-out range is $189,000 to $199,000, up from $186,000 to $196,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Saver’s Credit
In 2018, the AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low and moderate income workers is $63,000 for married couples filing jointly, up from $62,000 in 2017; $47,250 for heads of household, up from $46,500; and $31,500 for married individuals filing separately and for singles, up from $31,000 in 2017.

Businesses

Standard Mileage Rates
In 2018, the rate for business miles driven is 54.5 cents per mile, up from 53.5 cents per mile in 2017.

Section 179 Expensing
Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction increases to a maximum deduction of $1 million of the first $2,500,000 million of qualifying equipment placed in service during the current tax year. Indexed to inflation after 2018, the deduction was enhanced to include improvements to nonresidential qualified real property such as roofs, fire protection and alarm systems and security systems, and heating, ventilation, and air-conditioning systems.

Bonus Depreciation
Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.

Section 199 Deduction for Domestic Production Activities
Under the TCJA, the Section 199 deduction was repealed for taxable years beginning after December 31, 2017.

Work Opportunity Tax Credit (WOTC)
Extended through 2019, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. There was no change to this tax credit under TCJA.

Employee Health Insurance Expenses

For taxable years beginning in 2018, the dollar amount of average wages is $26,700 ($26,200 in 2017). This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.

Business Meals and Entertainment Expenses

The deduction remains at 50% for taxpayers who incur food and beverage expenses associated with operating a trade or business. For tax years 2018 through 2025, however, the 50% deduction expands to include expenses incurred for meals furnished to employees for the convenience of the employer. Amounts after 2025 are not deductible. Under the TCJA, in 2018, office holiday parties remain 100% deductible. Employee meals while on business travel also remain deductible at 50%. For tax years 2018 through 2025; however, the 50% deduction expands to include expenses incurred for meals furnished to employees for the convenience of the employer. Amounts after 2025 are not deductible. Further, the deduction for business entertainment expenses is eliminated (only meals at 50%).

Employer-provided Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees, in 2018 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $260, and the monthly limitation for qualified parking is $260. Parity for employer-provided mass transit and parking benefits was made permanent by PATH.

While this checklist outlines important tax changes for 2018, additional changes in tax law are more than likely to arise during the year ahead. Don’t hesitate to call if you want to get an early start on tax planning for 2018!