The Taxpayer Advocate Service did a great job in outlining 2018 tax law changes by topic while comparing them to 2017.

What's Changing by Tax Topic (click)


Form 1040 Redesign

Form 1040 has been reduced in size to fit on a postcard.

All of the line items from the prior year 1040 that were removed to accomplish this change have been offloaded to 6 new Schedules.

What this looks like and where everything went is discussed on this site at
Form 1040, Schedules & Tax Tables.


2018 Federal Tax Filing threshold

Pub 4012, p H-10

Table from IRS Pub 4012, p H-10

Table from IRS Pub 4012, p H-10


Standard Deduction

Pub 4012, p F-1

The Standard deduction has almost doubled for all filing statuses.

  • Single or Married filing separately—$12,000

  • Married filing jointly or Qualifying widow(er)—$24,000

  • Head of household—$18,000

Tricky bit:
For a Taxpayer that can be claimed as a dependent by another person the Standard Deduction CANNOT EXCEED the greater of

  • $1,050

  • Sum of $350 plus individual’s earned income ≤ $12,000

  • Worksheet to calculate Pub 4012, p F-2


Exemptions

In effect for tax years 2018 through 2025 by order of the Tax Cuts and Jobs Act.


This change impacts tax preparation for tax year 2019 but the dates of the underlying law relates to 2018.

  • Divorce decrees or orders executed after 12/31/2018. Alimony paid and Alimony received will not have any tax implications for decrees executed after this date.

    • Alimony received will NOT be considered compensation for IRA purposes.*

* Only taxable alimony is considered compensation for IRA purposes.


Student Loan Debt

Student loan debt is forgiven upon the death or disability of the student.

This is no longer considered income on Sch 1, Line 21.

AARP Volunteers: It appears that we will not have to make any determinations about this as the issuers are instructed NOT to use 1099-C to report these discharges. (Click for 1099-C instructions)


  • Home Mortgage Debt Interest deduction is reduced (Pub 936)

    • Acquired on or after 12/15/2017 - limited to interest on $750,000 ($375,000 MFS) of debt

    • Acquired before 12/15/2017 - limited to interest on $1,000,000 of acquisition debt.

  • State & Local income tax limited to $10,000 [$5,000 for MFS]

  • Medical expenses reduced by 7.5% AGI in 2018
    [in 2019 will return to 10% of AGI]

  • Miscellaneous itemized deductions that were subject to the 2%-of-adjusted-gross-income floor are no longer includable.


Child Tax Credit &

Additional Child Tax Credit

Pub 972 - Child Tax Credit

Pub 4012, p G-12

The most important changes to keep in mind

  • The dependent child MUST have a Social Security number

  • Maximum Child Tax Credit is $2,000.

  • Refundable Add’l Child Tax Credit max $1,400
    [Use Form 8812]

These credits are discussed on this site at
Dependents & Child Tax Credits


Example:

Example of how the Child Tax Credit and the Additional Child Tax Credit work together.

In the image below notice:

  • The nonrefundable CTC (shown on row 10) can only reduce tax to zero.

  • Additional Child Tax Credit (shown on row 13) can only

    • a) provide a MAX benefit of $2,000 when coupled with the CTC (column B), OR

    • b) provide $1,400 refundable credit all subject to earned income over $2,500 (column C).

CTC can only reduce tax to zero. Additional Child Tax Credit can only a) provide a MAX benefit of $2000 whencoupled with the CTC, or b) provide a $1,400 refundable credit all subject to earned income over $2,500.

CTC can only reduce tax to zero. Additional Child Tax Credit can only a) provide a MAX benefit of $2000 whencoupled with the CTC, or b) provide a $1,400 refundable credit all subject to earned income over $2,500.

 

Other Dependents Credit

Pub 4012, p G-14

New in 2018

Form 1040, Line 12a.


Preparing a return that requires calculation of the Kiddie Tax is now within Scope for Tax-aide.

Net unearned income over $2,100 is taxed using the brackets and rates for trusts and estates. This is a PERMANENT change to the tax code.

Form 8615 - Tax for Certain Children Who Have Unearned Income
Form 8615 - Instructions
Pub. 929, Tax Rules for Children and Dependents

example.
In the summer of 2018 Rosie, 16, earned $1,500 at her father’s beachside market. She also received $10,000 (rental income) for her interest in her grandmother’s LLP.

Standard Deduction is $350 + $1,500 = $1,850
Taxable Income is $11,500 - $1,850 = $9,650

All Rosie’s income is taxed as UNEARNED because her Standard Deduction is greater than her Earned income ($1,850 > $1,500).

The first $2,100 is below the Kiddie Tax threshold.

Kiddie Tax Calculation resized.png
 

Self-Employed Health Insurance Deduction

Pub 4012, p E-1 & E-4

Pub 334 - Tax Guide for Small Business

This is now within Scope for Tax-aide.

  • Available on tax returns with Schedule C profit.

  • Covered individuals include taxpayer, spouse and dependents

  • Requirement that the policy be “established under the trade or business”

  • Insurance can include:

    • Medicare (paid by taxpayer or spouse when filing MFJ)

    • Dental, vision, supplemental, etc.


Qualified Income Business Deduction

Pub 4012, p F-11

Instructions to 1040, p. 6 & 34

New in 2018

  • Appears on Form 1040, Line 9.

  • 20% of the LESSER of Qualified Business Income & Taxable Income.

Discussed in detail on this site at QBI Deduction


Tax Rates & Brackets

Modifications of the tax rate structure for 2018 and beyond.

A description of these changes and their implications is found in Pub 5307, page 1