Tax law changes brought into focus in the waning months of 2018
BY FREDA MIKLIN
GOVERNMENTAL REPORTER
On Aug. 21, Rick Whipple of WhippleWood CPAs, PC in Littleton, gave a wide-ranging presentation to members of the South Metro Denver Chamber on the changes created by the Tax Reform and Jobs Act of 2017. He focused on the new tax law’s impacts on both individuals and businesses.
Whipple said that there is no change to the current number of six tax brackets, but most rates have been reduced by two to 3 percent. The standard deduction has been doubled, which will result in more taxpayers taking the standard deduction instead of itemizing. Some charities are concerned that taxpayers not itemizing might have a negative impact on donations.
Whipple explained that the personal exemption has been eliminated. In its place is a $2,000 per child refundable tax credit for dependents under the age of 18. It phases out at high-income levels. There is no replacement for the personal exemption for adults. The “kiddie tax” has been eliminated, so that children with income are no longer taxed at their parents’ rate.
Whipple talked about the new limitation for all state and local taxes (SALT), an itemized deduction. The major components of that deduction for most Colorado homeowners are state income tax and local property tax. The deduction for all SALT is now limited to $10,000 in total, for single or married taxpayers filing jointly. (Married taxpayers filed separately are limited to $5,000). Another change to itemized deductions is the elimination of miscellaneous deductions, such as investment advising fees, tax preparation fees and unreimbursed employee business expenses.
Mortgage interest is now capped at $750,000 for new mortgages and home equity loan (HELOC) interest is only deductible if it is used for significant improvements to your home. Earlier it was believed that HELOC interest was not deductible at all.
Alimony payments have historically been treated as deductible to the payer and income to the recipient. Whipple said that the new law reverses that for divorce agreements entered into after Dec. 31. Alimony payments resulting from agreements entered into beginning in 2019 will not be deductible to the payer or considered income by the recipient. Payments made after 2018 pursuant to agreements entered into earlier are grandfathered in, thus fall under the old tax treatment.
Whipple said some changes made by the new tax law are only temporary. For example, the increase in the exemption for estate tax from $5.5 million in 2017 to $11.2 million in 2018 is set to expire in 2025.
He explained that regular corporations, known as C corporations, have historically been subject to progressive tax rates from 15 percent to 39 percent. Under the new law, the rate is reduced to 21 percent permanently for all C corporations. Whipple cautioned small-business owners to work carefully with their tax accountants before making any significant changes to their legal tax structure because there are other factors to consider besides tax rates, the most significant being double taxation of C corporations.
In the area of business deductions, Whipple shared that meals are still deductible at 50 percent, as long as all the required information to demonstrate a business purpose is maintained, but entertainment expenses like golf fees, admission to professional sports events, concerts and theater tickets are no longer deductible.
Whipple said that there are other changes, particularly for businesses, in the new tax law, but he emphasized that some regulations for implementing those changes have still not been finalized. He said some aspects of the new law do result in simplification, which is good.
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