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Plan Well, Retire Well

Saving and investing your money
1040 2017 NOT VALID FOR 2018

How will the Tax Cuts and Jobs Act of 2017 affect you? Check this head-to-head, line-by-line comparison of your 2017 and 2018 tax returns


As you're filling out your 2017 tax return, take the opportunity to think about how the new tax law will impact you for 2018 and beyond. To help, I've put together a list of the changes, organized by line number on the 1040 and Schedule A (Itemized Deductions). If you file the 1040A or 1040 EZ, your lines numbers will be different.

There's been a lot in the news about the changes, but it may be hard for you to get your head around. I hope that organizing the information this way will make it easier for you to see how you will be affected.

As you see the large number of changes, you can understand why it has been hard for anyone to come up with a rule of thumb about how the law will affect different groups of people. To estimate your bottom line - how all of these changes together will impact you - try an online calculator. There are many available online.

  • The Tax Policy Center's calculator let's you use a pre-defined, typical household's scenario, or enter your own information. Entering your own info will likely yield the most accurate result, especially if your income is from sources that are taxed differently (i.e., long term capital gains, Social Security benefits, business income). Of the calculators I tried, I preferred this one because it lets you  be more specific about my income sources. Below the boxes that show how much you're expected to owe, click "See Detailed Breakdown" to see exactly how your estimate was calculated.
  • Several websites use the Trump Tax Calculator created by Marketwatch. This quick-and-dirty calculator only asks for a few pieces of information. One thing I liked about it was that, it shows your income split across the different tax brackets, so you can see what tax bracket you are in and how your tax is calculated.

The new tax law includes two types of changes:

  • Temporary changes that will expire: Most of these changes are in effect from 2018 through 2025. Barring additional legislation, they will revert to the old (2017) rules beginning in 2026. 
    • There are a few exceptions to the effective dates; those dates are in bold in the tables below.
    • Expiration dates refer to calendar year taxpayers. Some taxpayers may use a fiscal year that ends on a different date.
  • Permanent changes: This includes new laws and the repeal of prior laws. These will be permanent, at least until additional legislation changes them.

In the tables below, for each change I've listed either the expiration date or noted that this is a permanent repeal or new rule.

After looking at this, please let me know if you have questions or comments. I will try to address those in a future post. Also, please let me know if you see anything that doesn't seem right. There is so much detail in this new law, it's possible that I got something wrong. There are some changes that I purposely did not include, since they didn't fit neatly into these line items.

You're probably wondering why I haven't talked about the new tax rates here. That will come in my next post. First, I'll show you how tax brackets work. Then I'll show you the new tax rates, and you'll understand their impact better. I'll also address some of the other changes that I didn't include here.

Form 1040 for 2017


2017

2018

Line 6 – Exemptions

This is a list of everyone "covered" by your tax return: you, your spouse, and dependents. On line 42, you get an exemption of $4050 for each person. An exemption reduces your taxable income.

There will be no exemptions. You will probably still be asked to list everyone covered by your tax return, but there will be no exemptions on Line 42. Instead, there will be a larger standard deduction. If you have a large family, this will could mean an increase in your taxable income and your taxes. (12/31/2025)

Line 11 – Alimony received

Alimony is taxable income for the recipient and a deduction for the payor. The recipient can count alimony as "earned income" for the purpose of determining whether you can contribute to an IRA.

Alimony will not be counted as ether income or a deduction for divorces or separation agreements executed after Dec. 31, 2018, and for earlier agreements that are modified after Dec. 31, 2018 and which state that the new rules apply. This means less taxable income for the recipient. It also raises the question of whether the recipient can still count this income to determine eligibility to contribute to an IRA. (repealed)

Line 12 – Business income or loss

Many taxpayers have business whose income "flows through" to the individual taxpayer and is reported either on Line 12 for sole proprietors or Line 17 for partnerships and S corporations.

Individual taxpayers reporting income from partnerships, S corporation, or sole proprietorships may be able to deduct 20% of their qualified business income (QBI). For tax filers whose income exceeds $315,000 for married filing jointly and $157,500 for others, limitations will apply for those involved in certain trades or businesses. The deduction will not reduce AGI. (12/31/2025)

Line 17 – Rental real estate, royalties, partnerships, S corporations, trusts, etc.

See Line 12.

See Line 12.

Line 26 – Moving expenses

Moving expenses associated with a job change at least 50 miles away can be deducted.

Only active duty members of the armed services can take the deduction. (12/31/2025)

Line 31 – Alimony paid

See Line 11

See Line 11

Line 35 – Domestic production activities

This deduction is a tax incentive for businesses that produce most of their goods or work in the U.S. rather than having it done overseas.

Repealed for most taxpayers beginning in 2018. (repealed)

Line 40 – Standard or itemized deduction

Every filer can claim the standard deduction, unless they are claimed as a dependent on someone else's tax return. The amount is based on your filing status: $6350 for single persons and married individuals filing separately, $12,700 for married persons filing jointly, and $9350 for heads of household. If your itemized deductions (listed on Schedule A) are larger, you claim that amount instead.

Standard deduction amounts increase to $12,000 for single and married filing separately, $24,000 for married filing jointly, and $18,000 for head of household. If your itemized deductions (listed on Schedule A) are larger, you claim that amount instead. See Schedule A, below, for changes in what expenses can be itemized. (12/31/2025)

Line 42 – Exemptions

You get an exemption of $4050 for each person listed on line 6.

There are no exemptions beginning in 2018. (12/31/2025)

Line 45 – Alternative minimum tax (AMT)

AMT is a second way of calculating your income tax. If the AMT calculation shows that you owe more tax than the regular calculation, you must pay the additional amount. AMT was originally designed to make sure that higher income filers didn't avoid paying income tax.

More income will be exempt from the AMT calculation, so fewer people will pay AMT. (12/31/2025)

Line 52 – Child tax credit

A credit of $1000 per qualifying child is applied to any tax owed. The credit is not refundable, although there is a separate refundable credit that can be claimed if you aren't eligible for the entire Child Tax Credit. There are income limits. For married taxpayers filing a joint return, the credit is phased out beginning at $110,000, at $55,000 for married taxpayers filing a separate return, and at $75,000 for all other taxpayers.

The credit is increased to $2000 per qualifying child, of which $1400 is refundable. The credit is phased out for filers with income of $400,000 for married filing jointly and $200,000 for all others. There is also a new $500 nonrefundable credit for other qualifying dependents. (12/31/2025)

Line 61 – Healthcare responsibility

If you and your family did not have health insurance for all of 2017, you may have to make a "shared responsibility payment."

This penalty is suspended beginning in 2019. (repealed)

Line 62 – Taxes

Tax is calculated based on the type and amount of income (i.e., ordinary income, including wages and interest, and long term capital gain income or qualified dividends).

Tax brackets for ordinary income have been decreased for most – but not all – tax brackets. (12/31/2025)

Line 67 – Additional Child tax credit

See Line 52.

See Line 52.

Schedule A

2017

2018

Line 4 – Medical & dental expenses

Expenses over 10% of adjusted gross income are deductible. If the taxpayer or spouse was born before Jan. 2, 1952, they can deduct any expenses over 7.5% of AGI.

Expenses over 7.5% are deductible in 2018 (12/31/2018)

Beginning in 2019, the threshold reverts to 10%.

Line 9 – Property taxes & either state income tax or sales tax

Deduct state and local taxes you paid, including:

  • Income taxes withheld or paid in 2017, or sales taxes.
  • Real estate (property) taxes
  • Personal property taxes

The total deduction for state/local income taxes and property taxes COMBINED is limited to $10,000. (12/31/2025)

Line 15 – Mortgage & investment interest

For mortgages on your first or second homes:

  • Deduct mortgage interest on up to $1 million of loans used to buy, build, or improve your home.
  • Deduct interest on mortgages up o$100,000 that were not used to buy, build or improve.

For new mortgages taken after Dec. 15, 2017, interest can only be deducted on the 1st $750,000 of acquisition debt. No deduction will be allowed for home equity loans regardless of when the loan was obtained, unless it was used to add onto a house. (12/31/2025)

Line 19 – Gifts to charity

For cash contributions, the deduction is limited to 50% of adjusted gross income.

The limit on annual deduction for cash contributions increases to 60% of AGI. (12/31/2025)

No deduction is allowed for amounts paid to a higher education institution in exchange for the right to purchase tickets or seats at athletic events.

Line 20 – Casualty & theft losses

In addition to existing limitations, a loss can only be claimed if it is in a Federal disaster area. (12/31/2025)

Line 27 – Job expenses, miscellaneous deductions

Miscellaneous deductions can be claimed to the extend they exceed 2% of AGI. Some of the more common ones are:

  • Certain unreimbursed employee expenses, including home office
  • Tax preparation & advice
  • Investment fees & expenses
  • Uniforms
  • Union dues

Not allowed beginning in 2018. (12/31/2025)

Line 28 – Other miscellaneous deductions

A very few specific deductions are allowed here. Gambling losses can be deducted but only to the extent of any winnings reported on Form 1040, Line 21.

Gambling losses include expenses associated with that gaming activity. (12/31/2025)

Line 20 – Total

The itemized deduction is limited for certain high income taxpayers.

The limit for high income taxpayers is suspended. (12/31/2025)


Correction: The effective date of the repeal of the Domestic Production Activities Deduction is tax years beginning after Dec. 31, 2017 for all entities. I previously said that the effective date for C corporations was later; that was incorrect.


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