Tax practitioners have known and discussed the tax law changes for 2018 returns for more than a year since the Dec. 22, 2017, passage of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. But even forearmed with that knowledge, CPAs now face a daunting task putting those new and revised provisions into practice. While past years' changes have often been piecemeal and incremental, those now facing taxpayers and preparers are nothing short of seismic.
Here is a discussion of some of the most important new provisions for individuals and businesses across a broad cross section of income tax returns. Many dollar amounts of brackets, thresholds, and other benchmarks for the 2018 tax year are given in the handy tear-out Filing Season Quick Guide accompanying this article.
The changes are extensive, the IRS is still issuing guidance, and final regulations interpreting and implementing many provisions are not likely to be issued until after 2018. While the Service has issued proposed regulations upon which taxpayers may rely in many areas, such as the new Sec. 199A qualified business income (QBI) deduction described later, those proposed regulations and many others still leave unanswered questions.
Perhaps the most obvious change on individual returns is the nearly doubled standard deduction, along with the suspension of personal and dependent exemptions and the limitation of some itemized deductions. As has been often observed, the upshot is that fewer taxpayers will claim itemized deductions and will take the standard deduction instead. The Heritage Foundation estimates that 90% of taxpayers will take the new standard deduction amount (Heritage Foundation, "Analysis of the 2017 Tax Cuts and Jobs Act," tinyurl.com/yb5a59c7), up from less than 69% for tax year 2016 (IRS, Individual Income Tax Returns, 2016, tinyurl.com/ydyayulf). Preparers asking clients if their itemized deductions would total less than the standard deduction ($12,000 (single filers) or $24,000 (joint filers)) are more likely to get an unequivocal answer, and get it quicker, than previously, e.g., for the 2017 amounts, $6,350 or $12,700, respectively. But they might mention to clients that the tax benefit of the higher standard deduction may be offset by the loss of the personal/ dependency exemption deduction. For example, for a family of three who each would have been eligible for a personal/dependency exemption deduction under prior law, the loss of those deductions (which under the prior law would have totaled $12,450 in 2018) is greater than the increase in the standard deduction under the TCJA (an $11,300 increase for joint filers). For larger households, the difference becomes even greater.
For those taxpayers who do itemize this year, there are several changes. Most importantly, all miscellaneous itemized deductions subject to the 2% floor under current law are repealed through 2025. The deduction for state and local income or property taxes is capped at $10,000 ($5,000 for married taxpayers filing separately). The threshold for deducting medical expenses has been lowered to 7.5% of adjusted gross income (for 2017 and 2018 only). Moving expenses are not deductible, except for members of the armed forces on active duty who move pursuant to a military order and incident to a permanent change of station. Personal casualty losses are deductible only...