3 Controversial Tax Reform Topics Impacting Individual Tax Returns

There are many new interesting aspects in the Tax Reform that may tug on individual taxpayers’ wallets. Here are highlights of three main areas potentially dividing dollars.

1. Alimony

One area that seems to be falling under the radar is the impact on divorce settlements. For divorce or separation agreements executed after December 31, 2018, the payers of alimony will no longer be allowed to take a deduction for the payments made, and the recipients will no longer be required to report those payments as income. This change will significantly impact the family law arena.

Under current law, alimony can be structured so that it is deductible by the payer spouse and taxable to the payee spouse. This could achieve large tax savings as the payment of alimony usually results in the shift of income to a lower tax bracket. The new law that takes effect after 2018 could make it more difficult for the two parties of a divorce to reach a financial settlement. It is quite possible that the size of future divorce settlements may be modified because of the lost tax benefit of shifting income.

2. Alternative Minimum Tax (AMT) Calculation

There are two changes to the AMT that may have an impact on a taxpayer’s individual income tax situation.

1. Exemption amount increase. 

It is the amount you can deduct from your AMT income. In a situation where none of the exemption is phased-out for married taxpayers, the increase in exemption could save a taxpayer almost $7,000 of AMT.

AMT COMPARISON: EXEMPTIONS 
FILERS PRE – 2018 2018 – 2025
Single/Head of Household $54,300 $70,300
Married Filing Jointly $84,500 $109,400
Married Filing Separately $42,250 $54,700
Trusts/Estates $24,100 $24,600
2. Income phase-out limits increase.

These are the income levels at which the above AMT exemptions start phasing out. In other words, if your income is above these levels, you lose some of the benefit of the AMT exemption.

AMT COMPARISON: PHASE-OUTS 
FILERS PRE – 2018 2018 – 2025
Single/Head of Household $120,700 $80,450
Married Filing Jointly $160,900 $1,000,000
Married Filing Separately $80,450 $500,000
Trusts/Estates $80,450 $82,050

 

Note that the loss of the deduction for state and local taxes on Schedule A, Itemized Deductions along with the increase in phase-out limits should have a significant, positive impact on a taxpayer’s individual AMT calculation. As with many of the Tax Reform changes impacting individuals, these AMT changes are in effect 2018 – 2025 but are currently set to expire in 2026.

3. Affordable Care Act (ACA) Individual Mandate

The Tax Reform eliminated the penalty for the individual mandate, and this change stays in effect after 2025 (unlike many provisions that sunset in 2025).

Ask CRI to Throw You a Tax Reform Rope

With 400+ pages, the Tax Reform legislation includes too many details to unknot alone. CRI’s tax professionals are ready to answer your questions about your tax strategy and go-forward plan. Contact us today.

2018-11-12T15:43:27+00:00January 4th, 2018|INDIVIDUAL TAX, JANUARY 2018, TAX REFORM: INDIVIDUAL TAX|